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

Question

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

  
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 forecasted sales, and suppliers are normally paid in 36 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 cash balance of $70 million and wishes to maintain a minimum balance of $30 million.

a. Complete the following cash budget for Wildcat, Inc. (Enter your answers in millions. A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

  
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.

b-1. Complete the following short-term financial plan for Wildcat, Inc. (Enter your answers in millions. A negative answer 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.)

  
b-2. What is the net cash cost (total interest paid minus total investment income earned) for the year? (A negative answer 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           $

Q1 Q2 Q3 Q4 Sales $ 125 $ 145 $ 165 $ 195

Explanation / Answer

If the collection period is 45 days, which is 1/2 of a quarter, the receivables for each quarter outstanding is 1/2 of each quarters sales.

Similarly the Payables outstanding would be 36/90 or 0.4% of the cost of goods. Using this we can estimate the beginning balance of payables to be:

45% X Q1 Sales X 0.4 = 45% X 125 X 0.4 = $22.50

The other cash flows involved are:

Question 1

Using the above figures, we can prepare the cash budget as follows:

Question 2

Using the above info we can prepare the short term finance plan:

Question 3

As seen in the above table, the company has not borrowed funds in any of the 4 quarters. The income from investing the excess cash amounts to $2.818M

Q1 Q2 Q3 Q4 Receivables at Beginning        55.00        62.50        72.50        82.50 Expected Sales      125.00 145 165 195 Receivables at End ( Quarterly Sales * 0.5)        62.50        72.50        82.50        97.50 Cash Inflow From Receivables      117.50      135.00      155.00      180.00

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