Wildcat, Incorporated, has estimated sales (in millions) for the next four quarters as follows: Q1 Q2 Q3 Q4 Sales $ 200 $ 220 $ 240 $ 270 Sales for the first quarter of the following year are projected at $215 million. Accounts receivable at the beginning of the year were $85 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 forecast 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 $96 million. Finally, the company started the year with a $85 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.) a-2. What is the net cash cost 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.) 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.) b-2. What is the net cash
Unfortunately, the information provided is not enough to complete the short-term financial plan and determine the net cash cost.
a-1. To complete the short-term financial plan for Wildcat:
1. Calculate the cash collections for each quarter:
- Q1 collections = Q1 sales * (1 - 45/90) = $200 * (1 - 45/90) = $100 million
- Q2 collections = Q2 sales * (1 - 45/90) = $220 * (1 - 45/90) = $110 million
- Q3 collections = Q3 sales * (1 - 45/90) = $240 * (1 - 45/90) = $120 million
- Q4 collections = Q4 sales * (1 - 45/90) = $270 * (1 - 45/90) = $135 million
- Q1 of the following year collections = Q1 of the following year sales * (1 - 45/90) = $215 * (1 - 45/90) = $107.5 million
2. Calculate the cash disbursements for each quarter:
- Q1 disbursements = Q2 purchases = 0.50 * Q2 sales = 0.50 * $220 = $110 million
- Q2 disbursements = Q3 purchases = 0.50 * Q3 sales = 0.50 * $240 = $120 million
- Q3 disbursements = Q4 purchases = 0.50 * Q4 sales = 0.50 * $270 = $135 million
- Q4 disbursements = Q1 of the following year purchases = 0.50 * Q1 of the following year sales = 0.50 * $215 = $107.5 million
3. Calculate the net cash flow for each quarter:
- Q1 net cash flow = Q1 collections - Q1 disbursements = $100 - $110 = -$10 million
- Q2 net cash flow = Q2 collections - Q2 disbursements = $110 - $120 = -$10 million
- Q3 net cash flow = Q3 collections - Q3 disbursements = $120 - $135 = -$15 million
- Q4 net cash flow = Q4 collections - Q4 disbursements = $135 - $107.5 = $27.5 million
- Q1 of the following year net cash flow = Q1 of the following year collections - Q4 disbursements = $107.5 - $107.5 = $0 million
4. Calculate the ending cash balance for each quarter:
- Q1 ending cash balance = Beginning cash balance + Q1 net cash flow = $85 + (-$10) = $75 million
- Q2 ending cash balance = Q1 ending cash balance + Q2 net cash flow = $75 + (-$10) = $65 million
- Q3 ending cash balance = Q2 ending cash balance + Q3 net cash flow = $65 + (-$15) = $50 million
- Q4 ending cash balance = Q3 ending cash balance + Q4 net cash flow = $50 + $27.5 = $77.5 million
- Q1 of the following year ending cash balance = Q4 ending cash balance + Q1 of the following year net cash flow = $77.5 + $0 = $77.5 million
a-2. The net cash cost for the year under this target cash balance is the sum of negative net cash flows for each quarter. Calculating the net cash cost for the year:
Net cash cost = ($10) + ($10) + ($15) + $0 = -$35 million
b-1. To complete the short-term financial plan assuming a minimum cash balance of $20 million:
1. Calculate the cash collections for each quarter (same as in a-1).
2. Calculate the cash disbursements for each quarter (same as in a-1).
3. Calculate the net cash flow for each quarter (same as in a-1).
4. Calculate the ending cash balance for each quarter, ensuring it does not fall below the minimum balance of $20 million:
- Q1 ending cash balance = MAX(Beginning cash balance + Q1 net cash flow, $20) = MAX($85 + (-$10), $20) = $75 million
- Q2 ending cash balance = MAX(Q1 ending cash balance + Q2 net cash flow, $20) = MAX($75 + (-$10), $20) = $65 million
- Q3 ending cash balance = MAX(Q2 ending cash balance + Q3 net cash flow, $20) = MAX($65 + (-$15), $20) = $50 million
- Q4 ending cash balance = MAX(Q3 ending cash balance + Q4 net cash flow, $20) = MAX($50 + $27.5, $20) = $77.5 million
- Q1 of the following year ending cash balance = MAX(Q4 ending cash balance + Q1 of the following year net cash flow, $20) = MAX($77.5 + $0, $20) = $77.5 million
b-2. The net cash cost for the year under this target cash balance is the sum of negative net cash flows for each quarter. Calculating the net cash cost for the year:
Net cash cost = ($10) + ($10) + ($15) + $0 = -$35 million