Wildcat, Inc., has estimated sales (in millions) for the next four quarters as f
ID: 2618084 • Letter: W
Question
Wildcat, Inc., has estimated sales (in millions) for the next four quarters as follows: Q1 Q2 Q3 Q4 Sales $ 180 $ 200 $ 220 $ 250 Sales for the first quarter of the year after this one are projected at $195 million. Accounts receivable at the beginning of the year were $77 million. Wildcat has a 45-day collection period. Wildcat’s purchases from suppliers in a quarter are equal to 50 percent of the next quarter’s forecasted sales, and suppliers are normally paid in 36 days. Wages, taxes, and other expenses run about 25 percent of sales. Interest and dividends are $10 million per quarter. Wildcat plans a major capital outlay in the second quarter of $85 million. Finally, the company started the year with a $81 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. 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.) WILDCAT, INC. Short-Term Financial Plan (in millions) Q1 Q2 Q3 Q4 Beginning cash balance $ 40.00 $ 40.00 $ 40.00 $ 40.00 Net cash inflow 16 New short-term investments 17 Income from short-term investments 1 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 (total interest paid minus total investment income earned) for the year under this target cash balance? (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 $ 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. 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.) WILDCAT, INC. Short-Term Financial Plan (in millions) Q1 Q2 Q3 Q4 Minimum cash balance $ 20.00 $ 20.00 $ 20.00 $ 20.00 Net cash inflow New short-term investments Income from 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 (total interest paid minus total investment income earned) for the year under this target cash balance? (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 $
Explanation / Answer
Q1 Q2 Q3 Q4 Q1 Sales 180 200 220 250 195 Accounts Receivable 77 Collection period 45 days Purchases 100 110 125 97.5 Payment period 36 days Wages,Taxes and other expenses 45 50 55 62.5 Interest and Dividends 10 10 10 10 Capital outlay 85 Cash 81 Minimum Bal 40 Can borrow at 3% per quarter Excess fund can earn at 2 % per quarter Cash Inflow Sales 128.5 190 210 235 Less: Purchases 60 106 119 108.5 Wages,Taxes and other expenses 45 50 55 62.5 Interest and Dividends 10 10 10 10 Capital outlay 85 Total Cash outflow 115 251 184 181 Net Cash Inflow 13.5 -61 26 54 45 day collection period means collection each quarter are half of current sales plus half of previous quarter sale 36 day payable means 3/5th of current quarter +2/5th of old quarter Wildcat, Inc Shor Term Financial Plan Q1 Q2 Q3 Q4 Beginning Cash Bal 40.00 40.00 40.00 40.00 Net cash inflow 13.50 -61.00 26.00 54.00 New Short-term investments 14.52 21.50 48.50 Income from short-term investments 1.02 1.11 - 0.43 Short-term investments sold - 55.52 - New short-term borrowing Interest on short term borrowing - 0.13 - Short Term borrowing repaid - 4.37 Ending cash balance 40.00 35.63 40.00 45.93 Minimum Cash Balance 40.00 40.00 40.00 40.00 Cumulative surplus deficit - 4.37 -0.00 5.93 Beginning Short Term Investments 41.00 55.52 - 45.07 Ending short term investments 55.52 - 21.50 93.57 Beginning short term debt - - 4.37 - Ending short term debt - 4.37 - - What is the net cash cost (Total Interest Paid minus total investment income)? Total Interest Received 2.56 Less : Interest Paid 0.13 Net Cash Cost 2.43 Wildcat, Inc Shor Term Financial Plan Q1 Q2 Q3 Q4 Beginning Cash Bal 20.00 20.00 20.00 20.00 Net cash inflow 13.50 -61.00 26.00 54.00 New Short-term investments 14.32 21.29 54.43 Income from short-term investments 0.82 1.11 - 0.43 Short-term investments sold - 55.32 - New short-term borrowing 4.57 Interest on short term borrowing - 0.14 - Short Term borrowing repaid - 4.57 Ending cash balance 20.00 20.00 20.00 20.00 Minimum Cash Balance 20.00 20.00 20.00 20.00 Cumulative surplus deficit - - 0.00 - Beginning Short Term Investments 41.00 55.32 - 45.07 Ending short term investments 55.32 - 21.29 99.50 Beginning short term debt - - 4.57 - Ending short term debt - 4.57 - - What is the net cash cost (Total Interest Paid minus total investment income)? Total Interest Received 2.35 Less : Interest Paid 0.14 Net Cash Cost 2.21
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