Wildcat, Inc., has estimated sales (in millions) for the next four quarters as follows: Q1 Q2 Q3 Q4
Sales $165 $185 $205 $235
-Sales for the first quarter of the year after this one are projected at $180 million. Accounts receivable at the beginning of the year were $71 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 $16 million per quarter.
-Wildcat plans a major capital outlay in the second quarter of $99 million. Finally, the company started the year with a cash balance of $78 million and wishes to maintain a $30 million minimum balance.
a. Complete the following cash budget for Wildcat, Inc.
WILDCAT, INC. Cash Budget (in millions)
Q1 Q2 Q3 Q4
Beginning cash balance $78.00 $ $ $
Net cash inflow
Ending cash balance $ $ $ $
Minimum cash balance -30.00 -30.00 -30.00 -30.00
Cumulative surplus (deficit) $ $ $ $
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.
WILDCAT, INC. Short-Term Financial Plan (in millions)
Q1 Q2 Q3 Q4
Target cash balance $30.00 $30.00 $30.00 $30.00
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?