Problem 26-14 Cash Management Policy Wildcat, Inc., has estimated sales (in mill

Question

Problem 26-14 Cash Management Policy

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 $120 million. Accounts receivable at the beginning of the year were $34 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 30 percent of sales. Interest and dividends are $6 million per quarter.

     Wildcat plans a major capital outlay in the second quarter of $40 million. Finally, the company started the year with a $32 million cash balance and wishes to maintain a $20 million minimum balance.

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. Prepare a short-term financial plan by filling in the following schedule. (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 final 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.

Complete the following short-term financial plan assuming that Wildcat maintains a minimum cash balance of $10 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 final answers to 2 decimal places. (e.g., 32.16))

What is the net cash cost for the year? (Enter your answers in millions. Do not round intermediate calculations and Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  

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

Explanation / Answer

(A)

(B)

WILDCAT, INC. Short-term Financial Plan ($ in millions) Q1 Q2 Q3 Q4   Cash balance 20 20 20 Net Cash Inflow 18.3 -36.46 -16.8 -2.6   New short-term investments 0 0 0 0   Income on short-term investments 0 0 0 0   Short-term investments sold 0 0 0 0   New short-term borrowing 1.75 37.58 17.32 2.68   Interest on short-term borrowing -0.05 -1.12 -0.52 -0.08   Short-term borrowing repaid 0 0 0 0   Ending cash balance 20.00 20.00 20.00 20.00   Minimum cash balance –20 –20 –20 –20   Cumulative surplus (deficit 1.7 36.46 16.8 2.6   Beginning short-term investments 0 0 0 0   Ending short-term investments 0 0 0 0   Beginning short-term debt 1.75 37.58 17.32 2.68   Ending short-term debt 1.75 39.33 56.65 59.33 Working Note-1 Net Cash Inflow Q1 Q2 Q3 Q4 Sales 105 90 122 140 Opening Balance of Cash 32 Collection(Sales of previous quarter*45/90) 34 52.5 45 61 Payment to Suppliers(45% of Sales of next quarter*36/90) -16.2 -21.96 -25.2 -21.6 Wages, taxes and other expenses(30% of Sales) -31.5 -27 -36.6 -42 Major capital outlay in Q2 -40 Net Cash inflow 18.3 -36.46 -16.8 -2.6

(B)

WILDCAT, INC. Short-term Financial Plan ($ in millions) Q1 Q2 Q3 Q4   Cash balance 10 10 10 Net Cash Inflow 18.3 -36.46 -16.8 -2.6   New short-term investments -8.47 0 0 0   Income on short-term investments 0.17 0 0 0   Short-term investments sold 0 8.47 0 0   New short-term borrowing 0 28.86 17.32 2.68   Interest on short-term borrowing 0 -0.87 -0.52 -0.08   Short-term borrowing repaid 0 0 0 0   Ending cash balance 10.00 10.00 10.00 10.00   Minimum cash balance -10 -10 -10 -10   Cumulative surplus (deficit 8.3 -27.99 -16.8 -2.6   Beginning short-term investments 8.47 8.47 0 0   Ending short-term investments 8.47 0 0 0   Beginning short-term debt 0 28.86 17.32 2.68   Ending short-term debt 0 28.86 46.18 48.86

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