Question

Wildcat, Inc., has estimated sales in millions) for the next four quarters as follows: Sales Q1 S 125 Q2 $145 Q3 $165 Q4 $195 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 30 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 $70 million cash balance and wishes to maintain a $40 million minimum balance a-1. 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. 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 answers to 2 decimal places, e.g. 32.16.) WILDCAT, INC. Short-Term Financial Plan (in millions) 01 Q2 S 40.00 $ 40.00 Q4 S 40.00 $ 40.00 Target cash balance 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) 69 69 ا Beginning short-term investments Ending short-term investments Beginning short-term debt Ending short-term debt 69 69 69 69 6 66 69 1 اية اية اية اية 69 a-2. What is the net cash cost for the year under this target cash balance? (Negative amount should be indicated by a minus sign. Enter your answer in millions. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Net cash cost

Answer 1

a-1Short-Term Financial Plan Target cash balance Net cash inflow New short-term investments (Note 2) Income from short-term investments (Note 3) Short-term investments sold (Note 2) New short-term borrowing Interest on short-term borrowing Short-term borrowing repaid | 01 02 03 40.00 40.00 40.00 20.85 -55.65 29.65 -21.45 0.00 -26.38 0.600 1.03 0.00 0.00 51.45 0.00 0.001 3.170 0.00 0.00 0.00 0.10 0.00 0.00 -3.17 04 40.00 58.10 58.63 0.53 0.00 0.00 0.00 0.00 Ending cash balance Minimum cash balance | 40.00 40.00 -40.00 -40.00 40.00 40.00 40.00 40.00 Cumulative surplus (deficit) 0.00 0.00 0.00 0.00 Beginning short-term investments 1 Ending short-term investments (Note 4) Beginning short-term debt Ending short-term debt 30.000 51.45 51.45| 0.00 0.00 0.00 0.00 3.17 0.00 26.38| 26.38 85.01 3.170.00 0.00 0.00 a2) net cash cost = 0.10 - (0.78+1.03+0.53) -2.06

working for part a-1: Note 1: 1.calculation of collection sales collection =50% of current Q +50% of Previous Q Q1 125.00 117.50 Q2 145.00 135.00 Q3 Q4 | Q1 165.00 195.00 140.00 155.00 | 180.00 | 2.calculation of payment to supplier Purchases Payments -40% of current Q +60% of Previous Q Q1 65.25 61.65 Q2 74.25 70.65 Q3 87.75 82.35 | Q4 63.00 72.90 | 01 117.50 02 135.00 03 155.00 04 180.00 calculation of net cash flow colletcion Less payments to supplier Wages, taxes, and other expense (20% of sales) capital outlay Interest and dividends total payments net cash flow 82.35 33.00 72.90 39.00 61.65 70.65 25.00 29.00 81.00 10.00 10.00 96.65190.65 20.85 - 55.65 10.00 125.35 29.65 10.00 121.90 58.10 Note 2: Target cash balance Net cash inflow Income from short-term investments Total Less : Minimum balance New investment/(Investment sold) 01 02 03 04 40.00 40.00 40.00 40.00 20.85 - 55.65 29.65 58.10 0.60 1.03 - 0.53 61.45 - 14.62 69.65 98.63 - 40.00 - 40.00 - 40.00 - 40.00 | 21.45 - 54.62 29.65 58.63 01 30.00 Note 3: Beginning short-term investments xinterest rate on investment Income from short-term investments 02 51.45 2% 1.03 03 - 2% 04 26.38 2% 0.53 2% 0.60 Note 4: Q1 Q2 Q3 24 Beginning short-term investments 30.00 51.45 - 26.38 New investment/(Investment sold) 21.45 - 54.62 29.65 58.63 Ending short-term investments/(Ending borrowing) | 51.45 - 3.17 | 29.65 | 85.01

b-1 Short-Term Financial Plan Target cash balance Net cash inflow New short-term investments (Note 2) | Income from short-term investments (Note 3) Short-term investments sold (Note 2) New short-term borrowing Interest on short-term borrowing Short-term borrowing repaid Q1 Q2 Q3 20.00 20.00 20.00 20.85 -55.65 29.65 -21.85 0.00 -30.00 1.000 1.44 0.35 0.00 54.21 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 24 20.00 58.10 59.05 0.95 | 0.00 0.00 0.00 0.00 Ending cash balance Minimum cash balance 20.00 20.00 20.00 -20.00-20.00-20.00 20.00 -20.00 Cumulative surplus (deficit) 0.00 0.00 0.00 0.00 Beginning short-term investments | Ending short-term investments (Note 4) Beginning short-term debt Ending short-term debt 50.00 71.85 71.85 17.64 0.00 0.00 0.00 0.00 17.64 47.64 0.00 0.00 47.64 106.69 0.00 0.00 b2) net cash cost = 0 - (1+1.44+0.35+0.95) -3.74

working for part b-1: Note 1: 1.calculation of collection sales collection =50% of current Q +50% of Previous Q 01 02 T03 TO T 125.00 145.00 165.00 195.00 117.50 135.00 155.00 180.00 140.00 | 2.calculation of payment to supplier Purchases Payments =40% of current Q +60% of Previous Q Q1 65.25 61.65 Q2 74.25 70.65 Q3 87.75 82.35 Q4 63.00 72.90 01 102 103 104 117.50 135.00 155.00 180.00 calculation of net cash flow colletcion Less payments to supplier Wages, taxes, and other expense (20% of sales) capital outlay Interest and dividends total payments net cash flow 82.35 33.00 72.90 39.00 61.65 70.65 25.00 29.00 81.00 10.00 10.00 96.65 190.65 20.85 - 55.65 10.00 125.35 29.65 10.00 121.90 58.10 Note 2: Target cash balance Net cash inflow Income from short-term investments (Note 3) Total Less : Minimum balance New investment/(Investment sold) 01 Q2 20.00 20.00 20.85 - 55.65 1.00 1.44 41.85- 34.21 - 20.00 - 20.00 - 21.85 - 54.21 | Q3 Q4 20.00 20.00 29.65 58.10 0.35 0.95 50.00 79.05 20.00 - 20.00 30.00 59.05 Note 3: Beginning short-term investments x interest rate on investment Income from short-term investments Q1 50.00 2% 1.00 Q2 71.85 2% 1.44 Q3 17.64 2% 0.35 Q4 47.64 2% 0.95 Note 4: Beginning short-term investments New investment/(Investment sold) Ending short-term investments/(Ending borrowing) Q1 Q2 50.00 71.85 21.85 - 54.21 71.85 17.64 Q3 17.64 30.00 47.64 Q4 47.64 59.05 106.69