The cash budget is considered the primary forecasting tool when firms try to estimate their cash flows and figure out if they are likely to need additional cash flows or to generate surplus cash.
Consider the case of Mooney Equipment:
Mooney Equipment is putting together its cash budget for the following year and has forecasted expected cash collections over the next five quarters (one year plus the first quarter of the next year). The cash collection estimates are based on sales projections and expected collection of receivables. The sales and cash collection estimates are shown in the following table (in millions of dollars):
|
Q1 |
Q2 |
Q3 |
Q4 |
Q5 |
|
|---|---|---|---|---|---|
| Sales | $1,210 | $1,510 | $1,560 | $1,360 | $1,610 |
| Total cash collections | $1,210 | $1,260 | $1,310 | $1,310 |
You also have the following information about Mooney Equipment: (no drop-downs were provided for this set)
| • | In any given period, Mooney’s purchases from suppliers generally account for 72% of the expected sales in the next period, and wages, supplies, and taxes are expected to be 15% of next period’s sales. |
| • |
In the third quarter, Mooney expects to expand one of its plants, which will require an additional $1,072 million investment. |
| • |
Every quarter, Mooney pays $60 million in interest and dividend payments to long-term debt and equity investors. |
| • | Mooney prefers to keep a minimum target cash balance of at least $14 million at all times. |
Using the preceding information, answer the following questions: (Note: Round your answers to the nearest millionth dollar.)
|
• What is the net cash inflow that Mooney expects in the second quarter (Q2)? a/ -1,005 million b/-151 million c/-164 million or d/-157 million |
|
|
• If Mooney is beginning this year with a cash balance of $36 million and expects to maintain a minimum target cash balance of at least $14 million, what will be its likely cash balance at the end of the year (after Q4)? a/ -1,290 million b/-1,441 million c/-285 million d/-128 million |
|
|
• What is the maximum investable funds that the firm expects to have in the next year? a/-141 million b/ -71 million c/-99 million or d/-121 million |
|
|
• What is the largest cash deficit that the firm expects to suffer in the next year? a/-873 million b/-1,455 million c/-728 million or d/-1,018 million |
True or False: If a firm changes its credit policy and allows customers to pay in 90 days instead of 60 days, and everything else remains the same, the net cash flow in the next quarter is likely to decrease.
False
True
In: Finance
Cash budget
The cash budget is considered the primary forecasting tool when firms try to estimate their cash flows and figure out if they are likely to need additional cash flows or to generate surplus cash.
Consider the case of Mooney Equipment:
Mooney Equipment is putting together its cash budget for the following year and has forecasted expected cash collections over the next five quarters (one year plus the first quarter of the next year). The cash collection estimates are based on sales projections and expected collection of receivables. The sales and cash collection estimates are shown in the following table (in millions of dollars):
|
Q1 |
Q2 |
Q3 |
Q4 |
Q5 |
|
|---|---|---|---|---|---|
| Sales | $1,650 | $1,950 | $2,000 | $1,800 | $2,050 |
| Total cash collections | $1,650 | $1,700 | $1,750 | $1,750 |
You also have the following information about Mooney Equipment:
| • | In any given period, Mooney’s purchases from suppliers generally account for 80% of the expected sales in the next period, and wages, supplies, and taxes are expected to be 15% of next period’s sales. |
| • | In the third quarter, Mooney expects to expand one of its plants, which will require an additional $1,080 million investment. |
| • | Every quarter, Mooney pays $45 million in interest and dividend payments to long-term debt and equity investors. |
| • | Mooney prefers to keep a minimum target cash balance of at least $16 million at all times. |
1. Using the preceding information, answer the following questions: (Note: Round your answers to the nearest millionth dollar.)
| • What is the net cash inflow that Mooney expects in the second quarter (Q2)? | |
| • If Mooney is beginning this year with a cash balance of $40 million and expects to maintain a minimum target cash balance of at least $16 million, what will be its likely cash balance at the end of the year (after Q4)? | |
| • What is the maximum investable funds that the firm expects to have in the next year? | |
| • What is the largest cash deficit that the firm expects to suffer in the next year? |
Drop down answers:
- -1,085 mil, -243 mil, -248 mil & -245 mil
- -1,781 mil, -208 mil, -1,538 mil & -453 mil
- -224 mil, -112 mil, -157 mil, & -190 mil
- --1,078 mil, -1,797 mil, -1,258mil, & -898 mil
True or False: If a firm changes its credit policy and allows customers to pay in 90 days instead of 60 days, and everything else remains the same, the net cash flow in the next quarter is likely to decrease.
False
True
In: Finance
Suppose that you are currently spending all of your income buying chicken and tofu. You are currently buying 5 chickens and 10 packages of tofu with your weekly income. The marginal utility of the last chicken is 1,000, and the price of chicken is $10. The marginal utility of the last package of tofu is 800, and the price of tofu is $4.
a. Are you currently maximizing your utility? How do you know, and if you are not, what should you be doing instead?
b. Explain in words why you should take the action you chose above. (HINT: what I am looking for here is for you to show why the first order condition in a utility-maximizing problem makes sense.)
In: Economics
2) Dependent T-test A researcher is interested in infants’ attention to their mothers’ voices. The research wants to know if the infant’s attention increases to the mother’s voice after spending the first week of life with the mother. The researcher selects 10 full-term infants with normal health who experienced uncomplicated deliveries and tested the number of seconds that the infant oriented in the direction of the mother’s voice on Day 1 and on Day 7 after delivery. These fictional data appear below. Use an α = 0.01 Day 1 Day 7 6 7 5 7 3 6 8 8 7 9 6 8 5 5 6 8 8 7 5 8
In: Statistics and Probability
Use the following information regarding your retirement planning:
To solve this problem, find the amount that you spend your first year of retirement.
In: Finance
Use the following information regarding your retirement planning:
To solve this problem, find the amount that you spend your first year of retirement.
In: Finance
Suppose you and your husband have decided that when you retire in 15 years you want to take a trip around the world for a year. You realize that you need to begin saving now for this trip of a lifetime. You want to be able to deposit annually (end of year payments) a fixed amount in an interest bearing account. It is estimated that monthly after that you will need to withdraw $5000 monthly for spending money. You will make the down payment at year 15 and the monthly payments will begin the first month after year 15 and will go for 12 months. How much must you deposit annually to be able to pay for these expenses. Assume 6% interest annual rate with monthly compounding.
In: Finance
In: Operations Management
Gross Domestic Product (GDP) is the final goods and
services produced in an economy or country, within a specific
period of time. It does not include the distribution of resources
in the economy (Mankiw 2017). After viewing the power point
provided I would say that using the GDP method would not give a
good measurement of the national economic well-being. For example,
GDP does not include intermediate goods: this is when an ingredient
or service is used to help make the product, nonmarket products:
this includes products that customers do not pay for, illegal
goo0ds, and bad and resource depletion: this is environment
pollution, water contamination and resources that are depleted.
When you think of quality of life, you think of the way one would
consider what a meaningful life is. To enjoy life sometimes you
have to do things that will be in your leisure time, or enjoying
things that you would not pay for, or even just purchasing products
that will be able to entertain you. These may not all include
spending money however, if leisure time is not included in the GDP
how can it accurately measure the economics well- being. In
2017 the top country with the highest GDP is the USA with a nominal
GDP of 19.39 trillion dollars, while the country ranking number is
China with a nominal GDP of 12.01 trillion
dollars.
Comment on this article in about 120 words
In: Economics
You have to buy a new copier. The cost of the copier is $2,000, plus $ 400 per year in maintenance costs. The copier will last for five years. Alternatively a local company offers to lease the copier to you and do the maintenance as well. If your discount rate is 6 %, what is the most you would be willing to pay per year to lease the copier (your first lease payment is due in one year)?
(Select the best choice below.)
A. The most you would be willing to pay per year to lease the copier is $ 3,684.95.
B. The most you would be willing to pay per year to lease the copier is $ 874.79.
C. The most you would be willing to pay per year to lease the copier is $ 400.
D. The most you would be willing to pay per year to lease the copier is $ 2,000.
In: Finance