Wildcat, Inc., has estimated sales (in millions) for the next four quarters as f
ID: 2752666 • Letter: W
Question
Wildcat, Inc., has estimated sales (in millions) for the next four quarters as follows:
Q1 Q2 Q3 Q4
Sales $230 $195 $270 $290
Sales for the first quarter of the year after this one are projected at $250 million. Accounts Receivable at the beginning of the year were $79 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 $15 million per quarter.
Wildcat plans a major capital outlay in the second quarter of $90 million. Finally, the company started the year with a $73 million cash balance and wishes to maintain a $30 million balance.
a. Complete a cash budget for Wildcat by filling in the following:
WILDCAT, INC.
Cash Budget (in millions)
Q1 Q2 Q3 Q4
Beginning cash balance
$73
Net cash inflow
Ending cash balance
Minimum cash balance
30
Cumulative surplus (deficit)
b. 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. What is the net cash cost (total interest paid minus total investment income earned) for the year?
WILDCAT, INC.
Short-Term Financial Plan
(in millions)
Q1 Q2 Q3 Q4
Beginning cash balance
$73
Net cash inflow
New short-term investments
Income on 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
Excess funds at start of quarter of
Excess funds at start of quarter of
Excess funds at start of quarter of
Excess funds at start of quarter of
Net cash cost
Q1
Q2
Q3
Q4
Cash generated by short-term financing
Beginning cash balance
$73
Net cash inflow
Ending cash balance
Minimum cash balance
30
Cumulative surplus (deficit)
Explanation / Answer
Q1 Q2 Q3 Q4 Sales 230 195 270 290 Accounts receivable 79 Collection period 45 days purchases 45% of next quarter sales Payment to suppliers 36 days Wages, taxes and other expenses 30% of sales Interest and Dividends 15 Million per quarter Expected capital outlay 90 Million in second quarter Sales for Q1 of Next year 250 Million Calculation of Net Cash flow Q1 Q2 Q3 Q4 Sales 230.00 195.00 270.00 290.00 Collection of Accounts receivable Outstanding at the beginning 79.00 Pertaining to the same quarter 115.00 97.50 135.00 145.00 Pertaining to Previous quarter 115.00 97.50 135.00 Total Collection of Accounts receivable 194.00 212.50 232.50 280.00 Ordering and Payment for accounts payable -87.75 -121.50 -130.50 -112.50 Wages, taxes and other expenses -69.00 -58.50 -81.00 -87.00 Interest and dividends -15.00 -15.00 -15.00 -15.00 Expected Capital outlay -90.00 Net Cash Flow 22.25 -72.50 6.00 65.50 Answer (a) Cash Budget Q1 Q2 Q3 Q4 Beginning Cash Balance 73 95.25 22.75 28.75 Net Cash flow 22.25 -72.50 6.00 65.50 Ending Cash Balance 95.25 22.75 28.75 94.25 Minimum Cash Balance 30 30 30 30 Cumulative Surplus / (Deficit) 65.25 58.00 56.75 121.00 Answer (b) interest on short term borrowings 3% per quarter interest on short term investments 2% per quarter Q1 Q2 Q3 Q4 Beginning cash balance 73.00 30.00 30.00 30.00 Net cash flow 22.25 -72.50 6.00 65.50 New Short term Investments 65.25 0.00 0.00 65.38 Income on Short term investments 0.00 1.31 0.00 0.00 Short Term Investments sold 0.00 65.25 0.00 0.00 New Short Term Borrowing 0.00 5.94 0.00 0.00 Interest on short term borrowing 0.00 0.00 0.18 0.004 Short term borrowings repaid 0.00 0.00 5.82 0.12 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 0.00 Beginning short term investments 0.00 65.25 0.00 0.00 Ending Short term investments 65.25 0.00 0.00 65.38 Beginning Short term debt 0.00 0.00 5.94 0.12 Ending Short term debt 0.00 5.94 0.12 0.00 Excess Funds at the start of Quarter 1 0.00 Excess Funds at the start of Quarter 2 0.00 Excess Funds at the start of Quarter 3 0.00 Excess Funds at the start of Quarter 4 0.00 Net Cash Cost Q1 0.00 Q2 1.31 Q3 -0.18 Q4 -0.01 Cash Generated by Short term Financing 0.00 1.31 1.13 1.12
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