Question

Intro

It is the beginning of January. Actual sales for the previous quarter (Q4) and estimated sales for the next five quarters are as follows (in $ million):

Quarter	Q4	Q1	Q2	Q3	Q4	Q1
Sales	24	25.2	26.46	27.78	29.17	30.63

You collect 50% of sales in the current quarter and the remainder in the following quarter. You expect to spend 40% of the following quarter's sales on purchases of components from suppliers, and to pay 70% of those purchases in the current quarter and the remainder in the following quarter. Wages and other expenses add up to 30% of each quarter's sales.

You have to pay $4 million in interest and dividends each quarter, and plan to spend $7 million on new machinery in Q3.

Assume that each quarter has 90 days, sales occur evenly throughout the quarter and all other cash flows occur at the end of the quarter.

Part 1

What is your expected net cash flow in Q1 (in $ million)?

Answer 1

Answer: Expected net cash flow in Q1: $ 2.6072 million

		Q1
Collection of current quarter sales ( 25.2 x 0.5 )		12.6 millions
Collection of previous quarter sales ( 24 x 0.5)		12.0
Total Cash Inflows		24.6
Cash payments for
Purchases on components
Current quarter purchases ( 26.46 x 40% x 70 % )	7.4088
Previous quarter purchases ( 25.2 x 40% x 30 % )	3.024	10.4328
Wages and other expenses ( 25.2 x 30 % )		7.56
Interest and dividends		4.00
Total Cash Outflows		21.9928
Expected Net Cash Flow		$ 2.6072 million