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

Q1	Amount in million
Cash Inflow		25
50% Sales in current quarter	12.6
50%sales of previous quarter sales	12
Cash outflow		22
70% Purchases of Q1	7.7
30% Purchases on Q4	3.03
Wages and expenses	7.56
Interest and dividend	4
NetCash Inflow		2.3

Net cash flow= $2.3 million

Workings

AutoSave © of CHO- Book2 - Excel Sign in - a File Home Insert Draw Page Layout Formulas Data Review View Help O Tell me what you want to do - Arial = = deur albe 9 - - A À - A - E = S General $ - % 9 Insert Delete - 1. Format - J Share Comments A 48 o Z Sort & Find & Filter - Select Paste B I U - 3 Cell Styles - Conditional Format as Formatting Table Clipboard Font Alignment Number Styles Cells Editing B13 - X fe Quarter ✓ B G H к L Q3 Q4 13 14 15 16 17 Quarter Sales Purchases Q4 24 =D14*40% Q1 25.2 =E14*40% E Q2 26.46 =F14*40% Q1 30.63 27.78 =G14*40% 29.17 =H14*40% Q1 Amount in million Cash Inflow =C19+C20 50% Sales in current quarter =25.2*50% 50%sales of previous quarter sales =24*50% -2 . 19 20 21 22 =SUM(C23:C26) 23 24 Cash outflow 70% Purchases of Q1 30% Purchases on Q4 Wages and expenses Interest and dividend =11*70% =30%*10.1 =30%*25.2 25 26 27 28 29 30 NetCash Inflow =D18-D22 31 32