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

Question

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 $140 million. Accounts receivable at the beginning of the year were $55 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 20 percent of sales. Interest and dividends are $10 million per quarter.

Wildcat plans a major capital outlay in the second quarter of $81 million. Finally, the company started the year with a cash balance of $70 million and wishes to maintain a $30 million minimum balance.

a. Complete the following cash budget for Wildcat, Inc. (Enter your answers in millions. Negative amounts should be indicated by a minus sign. 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.

b-1 Complete the following short-term financial plan for Wildcat, Inc. (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.)

b-2. What is the net cash cost (total interest paid minus total investment income earned) for the year? (Enter your answers in millions. Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

Q1 Q2 Q2 Q4 Sales $125 $145 $165 $195

Explanation / Answer

Answer

Cash Budget of Wildcat Inc Q1 Q2 Q3 Q4 Op. Bal $70.00 $88.78 $31.33 $58.28 Collection $117.50 $135.00 $155.00 $180.00 $187.50 $223.78 $186.33 $238.28 payment $98.72 $111.45 $128.05 $116.95 capital outlay $0.00 $81.00 $0.00 $0.00 $98.72 $192.45 $128.05 $116.95 $88.78 $31.33 $58.28 $121.33 Minimum Cash balance -$30.00 -$30.00 -$30.00 -$30.00 Cummulative Surplus $58.78 $1.33 $28.28 $91.33 Part-B short-term financial plan for Wildcat, Inc. Q1 Q2 Q3 Q4 Target cash balance $30.00 $30.00 $30.00 $30.00 Net cash flow $88.78 $31.33 $58.28 $121.33 New short term investment $58.78 $1.33 $28.28 $91.33 Income from investent $1.18 $0.03 $0.57 $1.83 Short term investent sold $0.00 $0.00 $0.00 $0.00 New Short Term Borro. $0.00 $0.00 $0.00 $0.00 Short term repaid $0.00 $0.00 $0.00 $0.00 END Cash $31.18 $30.03 $30.57 $31.83 Minimum Cash. $30.00 $30.00 $30.00 $30.00 Cummulative surpl. $1.18 $0.03 $0.57 $1.83 Beging Sht.Investment $58.78 $58.78 $60.11 $88.39 End Sh.term Investment $58.78 $60.11 $88.39 $179.72 being Sh.term debt $0.00 $0.00 $0.00 $0.00 End Sh.term debt $0.00 $0.00 $0.00 $0.00 Net cash income = $ 3.5944 Details working Working Q1 Q2 Q3 Q4 NextQ1 Sales $125.00 $145.00 $165.00 $195.00 $140.00 Collection : as collection period 45 days , half payment received in current qtr and balance in next qty Collection Q1 Q2 Q3 Q4 45day of old $55.00 $62.50 $72.50 $82.50 45day in current $62.50 $72.50 $82.50 $97.50 Total Collection $117.50 $135.00 $155.00 $180.00 Purchase $65.25 $74.25 $87.75 $63.00 * 45% of next qtr Q1 Q2 Q3 Q4 Payment of purchase 72 days $52.20 $59.40 $70.20 $50.40 18 days $11.52 $13.05 $14.85 $17.55 Wages (20% of sale) $25.00 $29.00 $33.00 $39.00 Interest $10.00 $10.00 $10.00 $10.00 total payment $98.72 $111.45 $128.05 $116.95

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