# UMUC FIN610 session 8 homework

June 8, 2016

Question
Problem 26-10 Calculating the Cash Budget

Here are some important figures from the budget of Cornell, Inc., for the second quarter of 2013:

April May June
Credit sales \$ 547,200 \$ 570,240 \$ 630,720
Credit purchases 211,680 252,720 288,450
Cash disbursements
Wages, taxes, and expenses 57,240 69,422 72,432
Interest 16,416 16,416 16,416
Equipment purchases 119,520 131,040 0

The company predicts that 5 percent of its credit sales will never be collected, 35 percent of its sales will be collected in the month of the sale, and the remaining 60 percent will be collected in the following month. Credit purchases will be paid in the month following the purchase.

In March 2013, credit sales were \$302,400, and credit purchases were \$224,640. Use the above information to complete the following cash budget.(Do not round intermediate calculations. Leave no cells blank – be certain to enter “0” wherever required.)

April May June
Beginning cash balance \$ 403,200 \$
\$
Cash receipts
Cash collections from credit sales

Total cash available \$
\$
\$
Cash disbursements
Purchases \$
\$
\$
Wages, taxes, and expenses

Interest

Equipment purchases

Total cash disbursements \$
\$
\$
Ending cash balance \$
\$
\$

Problem 26-14 Cash Management Policy

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

Q1 Q2 Q3 Q4
Sales \$ 105 \$ 90 \$ 122 \$ 140

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.

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. 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))

WILDCAT, INC.
Short-term Financial Plan
(\$ in millions)
Q1 Q2 Q3 Q4
Target cash balance \$ 20 \$ 20 \$ 20 \$ 20
Net cash inflow

New short-term investments

Income on 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 –20 –20 –20 –20
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 for the year under this target cash balance?(Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Net cash cost \$

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 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))

WILDCAT, INC.
Short-Term Financial Plan
(\$ in millions)
Q1 Q2 Q3 Q4
Target cash balance

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 –10 –10 –10 –10
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 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))

Net cash cost \$