Question

Digital Solutions Inc is preparing its cash collection summary for 2018. Digital ended 2017 with cash of $81 million, and managers need to keep a cash balance of at least $75 million for operations.

Collections from customers are expected to total $11,284 million during 2018, and payments for the cost of services should reach $6,166 million. Operating expense payments are budgeted at $2,543. During 2018, Digital expects to invest $1,825 million in new equipment and sell older assets for $115 million. Debt payments scheduled for 2018 will total $597 million. The company forecasts net income of $890 million for 2018 and plans to pay dividends of $338 million.

1. Prepare Digital Solutions cash balance for 2018. Will the cash receipts and payments leave Digital with the desired ending cash balance of $75 million, or will the company need additional financing? If it does, how much will it need?

Hint: cash collections - cash payments = ending cash - desired balance = financing (if needed)

Answer 1

1	Cash balance for 2018:
					$ in million	$ in million
	Beginning balance					81
	Add: Receipts
	Collections from customers				11284
	Sale of older assets				115	11399
	Total cash available					11480
	Less: payments
	Payments for the cost of services				6166
	Operating expense payments				2543
	Investment in new equipment				1825
	Debt payments				597
	Payment of dividends				338	11469
	Ending balance					11
	Cash balance for 2018=$ 11 million
	Financing required=Desired ending cash balance-Cash balance for 2018=75-11=$ 64 million