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

Q1

Q2

Q3

Q4

Sales

$170

$185

$200

$225

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. Wildcats purchases from suppliers in a quarter are equal to 45 percent of the next quarters 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 $14 million per quarter. Wildcat plans a major capital outlay in the second quarter of $85 million. Finally, the company started the year with a $54 million cash balance and wishes to maintain a $30 million minimum balance

a. Complete a cash budget for Wildcat by filling in the following:

WILDCAT, INC.

Cash Budget

(in millions)

Q1

Q2

Q3

Q4

Beginning cash balance

$54

Net cash inflow

Ending cash balance

Minimum cash balance

30

Cumulative surplus (deficit)

b. 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. What is the net cash cost (total interest paid minus total investment income earned) for the year?

WILDCAT, INC.

Short-Term Financial Plan

(in millions)

Q1

Q2

Q3

Q4

Target cash balance

$30

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 30

$30

Cumulative surplus (deficit)

Beginning short-term investments

Ending short-term investments

Beginning short-term debt

Ending short-term debt

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