Question

Wildcat, Inc., has estimated sales (in millions) for the next four quarters as follows:

	Q1			Q2			Q3			Q4
Sales	$	150		$	170		$	190		$	220

Sales for the first quarter of the year after this one are projected at $165 million. Accounts receivable at the beginning of the year were $65 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 36 days. Wages, taxes, and other expenses run about 20 percent of sales. Interest and dividends are $14 million per quarter.

Wildcat plans a major capital outlay in the second quarter of $91 million. Finally, the company started the year with a $75 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)
		Q1		Q2		Q3		Q4
Target cash balance		$ 40.00		$ 40.00		$ 40.00		$ 40.00
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)		$		$		$		$
Beginning short-term investments		$		$		$		$
Ending short-term investments		$		$		$		$
Beginning short-term debt		$		$		$		$
Ending short-term debt		$		$		$		$

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

$

b-1.

Complete the following short-term financial plan assuming that Wildcat maintains a minimum cash balance of $20 million. (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)
		Q1		Q2		Q3		Q4
Target cash balance		$ 20.00		$ 20.00		$ 20.00		$ 20.00
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)		$		$		$		$
Beginning short-term investments		$		$		$		$
Ending short-term investments		$		$		$		$
Beginning short-term debt		$		$		$		$
Ending short-term debt		$		$		$		$

b-2.	What is the net cash cost for the year under this target cash balance? (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

Fig.in mlns.	Q1	Q2	Q3	Q4	Next Yr.Q1
Sales	150	170	190	220	165
Sales collections(1&1/2 mths=50%* each qtr.)
In Q1(65/2)+(150/2)	107.5
Q2 (150/2)+(170/2)		160
Q3 (170/2)+(190/2)			180
Q4 (190/2)+(220/2)				205
1.Sales collections	107.5	160	180	205
Payment for purchases & other disbursements
Fig.in mlns.	Q1	Q2	Q3	Q4	Next Yr.Q1
Sales	150	170	190	220	165
Purchases (45%*next Qtr. Sales)	76.5	85.5	99	74.25
2.Payment for purchases(36/90)last qtr.+ ((90-36)/90)current qtr.	45.9	81.9	93.6	84.15
3.Wages, taxes&other expenses(20%* sales)	30	34	38	44
4.Int.&div.	14	14	14	14
5.Capital outlay		91
6.Total cash disbursements(2+3+4+5)	89.9	220.9	145.6	142.15
7. Net cash inflow(1-6)	17.6	-60.9	34.4	62.85

WILDCAT, INC.
Short-Term Financial Plan
(in millions)
	Q1	Q2	Q3	Q4
Target cash balance	40	40	40	40
Add:Net cash inflow(as in 7. above)	17.6	-60.9	34.4	62.85
Less:New short-term investments	18.3		28.7	63.42
## Add:Income on short-term investments	0.7	1.07	0	0.57	2.34
Add:Short-term investments sold		53.3
Add:New short-term borrowing		6.53
**Less:Interest on short-term borrowing			0.17		0.17
Less:Short-term borrowing repaid			5.53
					2.17	Net cash cost
Ending cash balance	40.00	40.00	40.00	40.00
Minimum cash balance	40	40	40	40
Cumulative surplus (deficit)	0	0	0	0
Beginning short-term investments	35	53.3	0	28.7
Ending short-term investments	53.3	0	28.7	92.12
Beginning short-term debt	0	0	6.62	0
Ending short-term debt	0	6.62	0	0
a-2. Net cash cost (2.34-0.17)=	2.17
##	35*0.02	53.3*2%	0	28.7*0.02
**			5.53*3%

b-1..WILDCAT, INC.
Short-Term Financial Plan
(in millions)
	Q1	Q2	Q3	Q4
Target cash balance	20	20	20	20
Add:Net cash inflow(as in 7. above)	17.6	-60.9	34.4	62.85
Less:New short-term investments	18.7		34.56	63.7
## Add:Income on short-term investments	1.1	1.47	0.16	0.85	3.5828
Add:Short-term investments sold		64.06
Add:New short-term borrowing		0
Less:Interest on short-term borrowing		0			0
Less:Short-term borrowing repaid			0
					3.5828	Net cash cost
Ending cash balance	20.00	20.00	20.00	20.00
Minimum cash balance	20.00	20	20	20
Cumulative surplus (deficit)	0	0	0	0
Beginning short-term investments	55	72	7.94	42.5
Ending short-term investments	73.7	7.94	42.50	106.2
Beginning short-term debt	0	0	0	0
Ending short-term debt	0	0	0	0
b-2. Net cash cost(3.5828-0)	3.5828
	3.58
Explanation for investment int.
##	55*0.02	73.7*2%	7.94*0.02	42.5*0.02