Wildcat, Inc., has estimated sales (in millions) for the next four quarters as f
ID: 2773591 • Letter: W
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 $170 million. Accounts receivable at the beginning of the year were $68 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 25 percent of sales. Interest and dividends are $12 million per quarter.
Wildcat plans a major capital outlay in the second quarter of $75 million. Finally, the company started the year with a $64 million cash balance and wishes to maintain a $30 million minimum balance.
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.
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))
What is the net cash cost 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))
Wildcat, Inc., has estimated sales (in millions) for the next four quarters as follows:
Explanation / Answer
Answer: a
A 45-day collection period means sales collections each quarter are:
Collections = 1/2 current sales + 1/2 old sales
A 36-day payables period means payables each quarter are:
Payables = 3/5 current orders + 2/5 old orders
So, the cash inflows each quarter are:
Q1 = $68 + 1/2($160) – 2/5(.45)($160) – 3/5(.45)($175) – .25($160) – $12
Q1 = $19.95
Q2 = 1/2($160) + 1/2($175) – 2/5(.45)($175) – 3/5(.45)($190) – .25($175) – $12 – 75
Q2 = –$46.05
Q3 = 1/2($175) + 1/2($190) – 2/5(.45)($190) – 3/5(.45)($215) – .25($190) – $12
Q3 = $30.75
Q4 = 1/2($190) + 1/2($215) – 2/5(.45)($215) – 3/5(.45)($170) – .25($215) – $12
Q4 = $52.15
The company’s cash budget will be:
WILDCAT, INC.
Cash Budget
(in millions)
Q1
Q2
Q3
Q4
Beginning cash balance
$64.00
$83.95
$37.90
$68.65
Net cash inflow
19.95
–46.05
30.75
52.15
Ending cash balance
$83.95
$37.9
$68.65
$120.8
Minimum cash balance
–30.00
–30.00
–30.00
–30.00
Cumulative surplus (deficit)
$53.95
7.90
$38.65
$90.8
Answer:b-1
WILDCAT, INC.
Short-Term Financial Plan
(in millions)
Q1
Q2
Q3
Q4
Beginning cash balance
$30.00
$30.00
$30.00
$30.00
Net cash inflow
19.95
–46.05
30.75
52.15
New short-term investments
–20.63
0
-20.787222
–52.56574
Income on short-term investments
0.68
1.0926
0
0.41574
Short-term investments sold
0
54.63
0
0
New short-term borrowing
0
9.6726
0
0
Interest on short-term borrowing
0
0
-0.290178
0
Short-term borrowing repaid
0
0
–9.6726
0
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
$0
$0
$0
Beginning short-term investments
$34.00
$54.63
$0
$20.787222
Ending short-term investments
54.63
0
20.787222
73.352
Beginning short-term debt
0
0
9.6726
0
Ending short-term debt
0
9.6726
0
0
Below you will find the interest paid (or received) for each quarter:
Q1: excess funds of $34 invested for 1 quarter earns .02($34) = $0.68 income
Q2: excess funds of $54.63 invested for 1 quarter earns .02($54.63) = $1.0926 in income
Q3: shortage of funds of $9.6726 borrowed for 1 quarter costs .03($9.6726) = $0.290178 in interest
Q4: excess funds of $20.787222 invested for 1 quarter earns .02($20.787222) = $0.41574 in income
Answer:b-2 Net cash cost = $0.68 + 1.0926 – 0.290178 + 0.41574= $1.898162
Q1
Q2
Q3
Q4
Beginning cash balance
$64.00
$83.95
$37.90
$68.65
Net cash inflow
19.95
–46.05
30.75
52.15
Ending cash balance
$83.95
$37.9
$68.65
$120.8
Minimum cash balance
–30.00
–30.00
–30.00
–30.00
Cumulative surplus (deficit)
$53.95
7.90
$38.65
$90.8
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