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Wildcat, Inc., has estimated sales (in millions) for the next four quarters as follows: |
| Q1 | Q2 | Q3 | Q4 | |||||||||
| Sales | $ | 160 | $ | 180 | $ | 200 | $ | 230 | ||||
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Sales for the first quarter of the year after this one are projected at $175 million. Accounts receivable at the beginning of the year were $69 million. Wildcat has a 45-day collection period. |
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Wildcat’s purchases from suppliers in a quarter are equal to 45 percent of the next quarter’s forecast sales, and suppliers are normally paid in 36 days. Wages, taxes, and other expenses run about 25 percent of sales. Interest and dividends are $12 million per quarter. |
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Wildcat plans a major capital outlay in the second quarter of $88 million. Finally, the company started the year with a cash balance of $77 million and wishes to maintain a $30 million minimum balance. |
| a. |
Complete the following cash budget for Wildcat, Inc. (Enter your answers in millions. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.) |
| WILDCAT, INC. Cash Budget (in millions) |
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| Q1 | Q2 | Q3 | Q4 | ||||||
| Beginning cash balance | $ | 77.00 | $ | $ | $ | ||||
| Net cash inflow | |||||||||
| Ending cash balance | $ | $ | $ | $ | |||||
| Minimum cash balance | –30.00 | –30.00 | –30.00 | –30.00 | |||||
| Cumulative surplus (deficit) | $ | $ | $ | $ | |||||
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Assume that Wildcat can borrow any needed funds on a short-term basis at a rate of 4 percent per quarter and can invest any excess funds in short-term marketable securities at a rate of 3 percent per quarter. |
| b-1. |
Complete the following short-term financial plan for Wildcat, Inc. (Enter your answers in millions. Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.) |
| WILDCAT, INC. Short-Term Financial Plan (in millions) |
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| Q1 | Q2 | Q3 | Q4 | ||||||
| Target cash balance | $ | 30.00 | $ 30.00 | $ 30.00 | $ 30.00 | ||||
| Net cash inflow | |||||||||
| New short-term investments | |||||||||
| Income from short-term investments | |||||||||
| Short-term investments sold | |||||||||
| New short-term borrowing | |||||||||
| Interest on short-term borrowing | |||||||||
| Short-term borrowing repaid | |||||||||
| Ending cash balance | $ | $ | $ | $ | |||||
| Minimum cash balance | |||||||||
| Cumulative surplus (deficit) | $ | $ | $ | $ | |||||
| Beginning short-term investments | $ | $ | $ | $ | |||||
| Ending short-term investments | $ | $ | $ | $ | |||||
| Beginning short-term debt | $ | $ | $ | $ | |||||
| Ending short-term debt | $ | $ | $ | $ | |||||
| b-2. |
What is the net cash cost (total interest paid minus total investment income earned) for the year? (Enter your answers in millions. Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) |
| Net cash cost | $ |
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| Part a | A 45-day collection period means sales collections each quarter are: | |||||
| Collections = 1/2 current sales + 1/2 old sales | ||||||
| A 36-day payables period means payables each quarter are: | ||||||
| Payables = 3/5 current orders + 2/5 old orders | ||||||
| So, the cash inflows and disbursements each quarter are: | ||||||
| For Ref | ||||||
| Q1 | Q2 | Q3 | Q4 | Q1 Next Year | ||
| Beginning receivables | $ 69.00 | $ 80.00 | $ 87.50 | $ 95.00 | ||
| Sales | $ 160.00 | $ 175.00 | $ 190.00 | $ 215.00 | $ 175 | |
| Collection of accounts (Half last month sale, Half current month sale) | $ 149.00 | $ 167.50 | $ 182.50 | $ 202.50 | ||
| Ending receivables | $ 80.00 | $ 87.50 | $ 95.00 | $ 107.50 | ||
| Payment of accounts (Current Sale*45%*3/5)+(Last Sale*45%*2/5) | $ 76.05 | $ 82.80 | $ 92.25 | $ 85.95 | ||
| Wages, taxes, and expenses (25% of Sale) | $ 40.00 | $ 43.75 | $ 47.50 | $ 53.75 | ||
| Capital expenditures | $ - | $ 88.00 | $ - | $ - | ||
| Interest and dividends | $ 12.00 | $ 12.00 | $ 12.00 | $ 12.00 | ||
| Total cash disbursements | $ 128.05 | $ 226.55 | $ 151.75 | $ 151.70 | ||
| Total cash collections | $ 149.00 | $ 167.50 | $ 182.50 | $ 202.50 | ||
| Total cash disbursements | $ 128.05 | $ 226.55 | $ 151.75 | $ 151.70 | ||
| Net cash inflow | $ 20.95 | $ (59.05) | $ 30.75 | $ 50.80 | ||
| The company’s cash budget will be: | ||||||
| Q1 | Q2 | Q3 | Q4 | |||
| Beginning cash balance | $ 77.00 | $ 97.95 | $ 38.90 | $ 69.65 | ||
| Net cash inflow | $ 20.95 | $ (59.05) | $ 30.75 | $ 50.80 | ||
| Ending cash balance | $ 97.95 | $ 38.90 | $ 69.65 | $ 120.45 | ||
| Minimum cash balance | $ (30.00) | $ (30.00) | $ (30.00) | $ (30.00) | ||
| Cumulative surplus (deficit) | $ 67.95 | $ 8.90 | $ 39.65 | $ 90.45 | ||
| Part b | ||||||
| Q1 | Q2 | Q3 | Q4 | |||
| Beginning cash balance | $ 30.00 | $ 30.00 | $ 30.00 | $ 30.00 | ||
| Net cash inflow | $ 20.95 | $ (59.05) | $ 30.75 | $ 50.80 | ||
| New short-term investments | $ (22.36) | $ - | $ (31.12) | $ (52.00) | ||
| Income on short-term investments | $ 1.41 | $ 2.08 | $ 0.37 | $ 1.20 | ||
| Short-term investments sold | $ - | $ 56.97 | $ - | $ - | ||
| New short-term borrowing | $ - | $ - | $ - | $ - | ||
| Interest on short-term borrowing | $ - | $ - | $ - | $ - | ||
| Short-term borrowing repaid | $ - | $ - | $ - | $ - | ||
| Ending cash balance | $ 30.00 | $ 30.00 | $ 30.00 | $ 30.00 | ||
| Minimum cash balance | $ (30.00) | $ (30.00) | $ (30.00) | $ (30.00) | ||
| Cumulative surplus (deficit) | $ - | $ 0.00 | $ 0.00 | $ 0.00 | ||
| Beginning short-term investments | $ 47.00 | $ 69.36 | $ 12.39 | $ 40.02 | ||
| Ending short-term investments | $ 69.36 | $ 12.39 | $ 40.02 | $ 92.02 | ||
| Beginning short-term debt | $ - | $ - | $ - | $ - | ||
| Ending short-term debt | $ - | $ - | $ - | $ - | ||
| Net Cash Cost (Total of Income on short term investment) | $ 5.06 | |||||
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