Question

Wildcat, Inc., has estimated sales (in millions) for the next four quarters as follows:

	Q1			Q2			Q3			Q4
Sales	$	200		$	220		$	240		$	270

Sales for the first quarter of the following year are projected at $215 million. Accounts receivable at the beginning of the year were $85 million. Wildcat has a 45-day collection period.

Wildcat’s purchases from suppliers in a quarter are equal to 50 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 $10 million per quarter.

Wildcat plans a major capital outlay in the second quarter of $96 million. Finally, the company started the year with a cash balance of $85 million and wishes to maintain a $30 million minimum balance.

a.	Complete the following cash budget for Wildcat, Inc. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in millions, not dollars, rounded to 2 decimal places, e.g., 32.16.)

       

Assume that Wildcat can borrow any needed funds on a short-term basis at a rate of 3 percent per quarter and can invest any excess funds in short-term marketable securities at a rate of 2 percent per quarter.

b-1.

Complete the following short-term financial plan for Wildcat, Inc. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in millions, not dollars, rounded to 2 decimal places, e.g., 32.16. Leave no cells blank - be certain to enter "0" wherever required.)

       

b-2.	What is the net cash cost (total interest paid minus total investment income earned) for the year? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in millions, not dollars, rounded to 2 decimal places, e.g., 32.16.)

       

Answer 1

Cash Budget for the year

Below figures are in $ millions

	Beginning	Q1	Q2	Q3	Q4
Opening Balance	85	85	104.615385	38.3478261	69.4347826
Sales	170	200	220	240	270
Receivables	85	98.9011	107.608696	117.391304	135
Cash Received	0	186.099	211.292403	230.217391	252.391304
Purchases	100	110	120	135	107.5
Cash Paybles	40	43.5165	46.9565217	52.826087	43
Cash Paid	0	-106.484	-116.55996	-129.13043	-117.32609
Other Exp Paid	0	-50	-55	-60	-67.5
Interest	0	-10	-10	-10	-10
Capital Outlay	0	0	-96	0	0
Investment Interest	0	0	2.09230769	0.76695652	1.38869565
Closing Balance		104.615	38.3478261	69.4347826	127

Net Cash Cost (Only Investment Interest Income) = $ 4.25 million