Question

Please answer all of the questions, thank you!!

Mooney Equipment is putting together its cash budget for the following year and has forecasted expected cash 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 receivables. The sales and cash collection estimates are shown in the following table (in millions of dollars): Q1 Q2 Q3 Q4 Q5 Sales $1,210 $1,510 1,560 $1,360 $1,610 Total cash collections $1,210 $1,260 $1,310 $1,310 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 $45 million 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 million at all times Using the preceding information, answer the following questions: What is the net cash inflow that Mooney expects in the first quarter (Q1)? If Mooney is beginning this year with a cash balance of $35 milion and expects to maintain a minimum target cash balance of at least $14 million, what will be its likely cash balance at the end of the year (after Q4)? What is the maximum investable funds that the firm expects to have in the next year? What is the largest cash deficit that the firm expects to suffer in the next year? True or False: One of the firm's suppliers offers payment terms of 3/10, net 30, and the other offers net 30. If the firm chooses to go with the supplier that offers 3/10, net 30, and everything else remains the same, the firm's net cash flow is likely to increase in a monthly cash budget after a few months. True O False

Answer 1

1.

Cash Collection		1210
Purchase( assumed Cash purchase)	1510*70%	-1057
Wage/Supplies/Taxes	1510*15%	-226.5
Interest?Dividend		-45
So net cash Inflow		-118.5

As Minimum target cah balnce is 14M, net Cash inflow would be 14 M

2.

		Q1	Q2	Q3	Q4
Beginning Balance		35	14	14	14
Cash Collection		1210	1260	1310	1310
Purchase( assumed Cash purchase)	-70%	-1057	-1092	-952	-1127
Wage/Supplies/Taxes	-15%	-226.5	-234	-204	-241.5
Interest?Dividend		-45	-45	-45	-45
So net cash Inflow		-118.5	-111	109	-103.5
Minimum Cash Balance		14	14	14
Amount Unpaid( Net Cash Outflow + Minimum Cash Balnce)		-104.5	-97	-215.5

Based on above Calculation Ans for 2. 14 M

3. 14 M

4 -215.5+-103.5 = 319 M