Question

Consider the case: 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	$1,430	$1,730	$1,780	$1,580	$1,830
Total cash collections	$1,430	$1,480	$1,530	$1,530

You also have the following information about Mooney Equipment:

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 $55 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:

1. What is the net cash inflow that Mooney expects in the first quarter (Q2): -$118 million / -$972 million / -$131 million / -$124 million

2. 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): -$1,309million / -$219 million / -$95 million / -$1,191million

3. What is the maximum investable funds that the firm expects to have in the next year? -$76million / -$55 million / -$93 million / -$109 million

4. What is the largest cash deficit that the firm expects to suffer in the next year? -$1,323 million / -$926 million / -$662 million / -$794 million

5. If a fr 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  . True / False

Answer 1

	Q1	Q2	Q3	Q4	Q5
Sales	1430	1730	1780	1580	1830
Total cash collections	1430	1480	1530	1530
Purchases (72% of next period)	-1246	-1282	-1138	-1318
Wages, salaries, Taxes (15% of next period sales)	-260	-267	-237	-275
Investment			-1072
Interest	-55	-55	-55	-55
Cash Flow	-131	-124	-972	-118	0
Opening cash balance	36	-95	-219	-1191
Ending cash balance	-95	-219	-1191	-1309
Target cash balance	14	14	14	14
Surplus / Deficit	-109	-233	-1205	-1323

1.  Net cash inflow that Mooney expects in the first quarter = - $131 million

2. likely cash balance at the end of the year (after Q4) = -$1309 million

3. Not sure if the options are correct,

Ans: - 118+ 36 = - $82 million

4. Cumulative cash balance = -$1345 million

largest cash deficit that the firm expects to suffer in the next year = -1345 + 36-14 = - $1323 million

5. True

Any doubt please comment.