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 $170 million.
Accounts receivable at the beginning of the year were $68 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 25 percent of sales. Interest and dividends are $12 million per quarter. Wildcat plans a major capital outlay in the second quarter of $75 million. Finally, the company started the year with a $49 million cash balance and wishes to maintain a $30 million minimum balance.
a. Complete a cash budget for Wildcat by filling in the following:
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?