216270,47 nun odeid & elSBN = : 9781 30563597swapare MINDTAP Assignment 15-Worki

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216270,47 nun odeid & elSBN = : 9781 30563597swapare MINDTAP Assignment 15-Working Capital Management Due on Nov 27 at 11 PM EST 7. Cash budget The cash budget is considered the primary forecasting tool if they are likely to need additional cash flows or to generate surplus cash. AaAa when firms try to estimate their cash flows and figure out Consider the case of Mooney Equipment: Mooney Equipment is putting together its cash budget fo collections over the next five quarters (one year plus the first quarter of the next year). The cash collection estimates are based on sales projections and expected collection of estimates are shown in the following table (in millions of dollars) receivables. The sales and cash collection 01 2 034 5 $1,430 $1.730 $1,780 $1,580 $1,830 Sales Total cash collections $1,430 $1,480 $1,530 $1,530 You also have the following information about Mooney Equipment: In any given period, Mooney's purchases from suppliers generally account for 70% of the expected sales in the next period, and wages, supplies, and taxes are expected to be 15% of next period's sales. * In the third quarter, Mooney expects to expand one of its plants, which will require an additional $1,070 million Investment. Every quarter, Mooney pays $55 milion in interest and dividend payments to long-term debt and equity investors Mooney prefers to keep a minimum target cash balance of at least $14 milllon at all times preceding information, answer the following questions: O Type here to search

Explanation / Answer

Cash Budget :

Answers:

1. Net cash flow quarter 1 of next year = - 60.50 - 35 = -$95.50m

2. Cash balance at the end of the next year = $14m

3. Maximum expected investable fund to the next year = Nil (as firm have borrow to maintain Minimum balance in next year)

4. Next year's largest cash deficit = $1181m

5. TRUE, because the expected cash collection shifts to future quarters on the raising of the credit period.

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Q1 $'m Q2 Q3 Q4 Total $'m OB 35 14 14 14 + Cash collection 1430 1480 1530 1530 total cash available 1465 1494 1544 1544 Less: Disbursement: Purchases + expenses (70%+15%=85% of next qter sales) 1470.50 1513 1343 1555.50 Investment 1070 Dividend 55 55    55    55 Total Disbursement 1525.50 1568 2468 1610.50 Excess of cash over disbursement -60.50 -74 -924 -66.50 Loan required to maintain Minimum balance 74.50 88 938 80.50 $1181 CB of cash 14 14 14 14

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