Problem 26-14 Cash Management Policy Wildcat, Inc., has estimated sales (in mill
ID: 2463945 • Letter: P
Question
Problem 26-14 Cash Management Policy
Wildcat, Inc., has estimated sales (in millions) for the next four quarters as follows:
Sales for the first quarter of the year after this one are projected at $120 million. Accounts receivable at the beginning of the year were $34 million. Wildcat has a 45-day collection period.
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 30 percent of sales. Interest and dividends are $6 million per quarter.
Wildcat plans a major capital outlay in the second quarter of $40 million. Finally, the company started the year with a $32 million cash balance and wishes to maintain a $20 million minimum balance.
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. Prepare a short-term financial plan by filling in the following schedule.(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))
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.
Complete the following short-term financial plan assuming that Wildcat maintains a minimum cash balance of $10 million.(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))
What is the net cash cost for the year? (Enter your answers in millions. Do not round intermediate calculations and Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Wildcat, Inc., has estimated sales (in millions) for the next four quarters as follows:
Explanation / Answer
45 day collection period means sales collection in each quarter are as follows Collections= 1/2 of Current Sales+1/2 prior quarters sales 36 day payable period means payable eacha quarter are as follows Payables= 3/5 of current purchase+2/5 of prior quarters purchase so the cash inflow and outflow for each quarter are as follows Q1 Q2 Q3 Q4 Beginning Receivables 34 $52.50 $45.00 $61.00 Sales $105 $90 $122 $140 Collection of accounts $86.50 $97.50 $106.00 $131.00 Ending receivables $52.50 $45.00 $61.00 $70.00 Payment of Accounts $43.20 $49.14 $59.76 $25.20 Wages taxes and expenses $31.50 $27.00 $36.60 $42.00 Capital expenditure $40 Interest and dividends $6 $6 $6 $6 Total Cash disbursement $80.70 $122.14 $102.36 $73.20 Total Cash collections $86.50 $97.50 $106.00 $131.00 Total Cash Disbursement $80.70 $122.14 $102.36 $73.20 Net Cash inflow $5.80 ($24.64) $3.64 $57.80 WILDCAT INC CASH BUDGET (In Millions) Q1 Q2 Q3 Q4 Beginning cash Balance 32 $17.80 ($26.84) ($43.20) Net Cash inflow $5.80 ($24.64) $3.64 $57.80 Ending Cash Balance $37.80 ($6.84) ($23.20) $14.60 Minimum Cash Balance 20 20 20 20 Cumulative surplus(Deficit) $17.80 ($26.84) ($43.20) ($5.40) WILDCAT INC SHORT TERM FINANCIAL PLAN ($ IN MILLIONS) Q1 Q2 Q3 Q4 Target Cash Balnace $20 $20 $20 $20 Net Cash Inflow $5.80 ($24.64) $3.64 $57.80 New Short term Investments ($6.04) 0 0 54.93 Income on short term investment 0.24 0.36 0 0 Short term investment sold 0 18.04 0 0 New short term borrowing 0 6.24 0 0 Interest on short term borrowing 0 0 -0.19 -0.08 Short term borrowing repaid 0 0 -3.45 -2.79 Ending Cash Balance $20 20 20 20 Minimum Cash balance ($20) ($20) ($20) ($20) Cumulative Surplus(Deficit) $0 $0 $0 $0 Beginning Short term investment $12 $18.04 0 0 Ending Short term Investment $18.04 0 0 54.93 Beginning short term debt $0 0 6.24 2.79 Ending short term debt $0 6.24 2.79 0 Net Cash Cost= Q1 Income of 0.24+Q2 Income of 0.36-Interest cost of 0.19 for Q3 -Int. Cost of Q4 of 0.08 Net Cash Cost= $0.33 For Minimum Cash Balance of $10 Financial Plan will be as under WILDCAT INC SHORT TERM FINANCIAL PLAN ($ IN MILLIONS) Q1 Q2 Q3 Q4 Target Cash Balnace $10 $10 $10 $10 Net Cash Inflow $5.80 ($24.64) $3.64 $57.80 New Short term Investments ($6.24) 0 ($3.72) ($57.96) Income on short term investment 0.44 0.56 0.08 0.16 Short term investment sold 0 $24.64 0 0 New short term borrowing 0 0 0 0 Interest on short term borrowing 0 0 0 -0.08 Short term borrowing repaid 0 0 0 -2.79 Ending Cash Balance $10 $10 $10 $10 Minimum Cash balance ($10) ($10) ($10) ($10) Cumulative Surplus(Deficit) $0 $0 $0 $0 Beginning Short term investment $22 $28.24 4.16 7.88 Ending Short term Investment $28.24 4.16 7.88 $65.84 Beginning short term debt $0 0 0 0 Ending short term debt $0 0 0 0 Net Cash Cost= Income(0.44+.56+0.08+.16) Net Cash Cost= $1.24
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