Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
B-310 SOLUTIONS
11. The sales collections each month will be:
Sales collections = .35(current month sales) + .60(previous month sales)
Given this collection, the cash budget will be:
April May June
Beginning cash balance $140,000 $101,600 $104,100
Cash receipts
Cash collections from
credit sales 283,500 361,400 371,700
Total cash available $423,500 463,000 475,800
Cash disbursements
Purchases $168,000 $147,800 $176,300
Wages, taxes, and expenses 53,800 51,000 78,300
Interest 13,100 13,100 13,100
Equipment purchases 87,000 147,000 0
Total cash disbursements $321,900 $358,900 $267,700
Ending cash balance $101,600 $104,100 $208,100
12. Item
Source/Use Amount
Cash Source $1,100
Accounts receivable Use –$4,300
Inventories Use –$3,670
Property, plant, and equipment Use –$12,720
Accounts payable Source $2,600
Accrued expenses Use –$810
Long-term debt Source $3,000
Common stock Source $5,000
Accumulated retained earnings Source $1,610
Intermediate
13. a. If you borrow $50,000,000 for one month, you will pay interest of:
Interest = $50,000,000(.0064)
Interest = $320,000
However, with the compensating balance, you will only get the use of:
Amount received = $50,000,000 – 50,000,000(.05)
Amount received = $47,500,000
This means the periodic interest rate is:
Periodic interest = $320,000/$47,500,000
14. a. The EAR of your investment account is:
b. To calculate the EAR of the loan, we can divide the interest on the loan by the amount of the loan.
The interest on the loan includes the opportunity cost of the compensating balance. The
opportunity cost is the amount of the compensating balance times the potential interest rate you
could have earned. The compensating balance is only on the unused portion of the credit line, so:
Opportunity cost = .04($70,000,000 – 45,000,000)(1.012)4 – .04($70,000,000 – 45,000,000)
Opportunity cost = $48,870.93
c. The compensating balance is only applied to the unused portion of the credit line, so the EAR of a
loan on the full credit line is:
B-312 SOLUTIONS
15. a. A 45-day collection period means sales collections each quarter are:
Collections = 1/2 current sales + 1/2 old sales
A 36-day payables period means payables each quarter are:
Payables = 3/5 current orders + 2/5 old orders
CHAPTER 18 B-313
With a $30 million minimum cash balance, the short-term financial plan will be:
WILDCAT, INC.
Short-Term Financial Plan
(in millions)
b.
Q1 Q2 Q3 Q4
Beginning cash balance $30.00 $30.00 $30.00 $30.00
Net cash inflow 22.10 –40.55 19.55 65.30
New short-term investments –22.78 0 –19.90 –65.70
Income on short-term investments 0.68 1.14 0.35 0.40
Short-term investments sold 0 39.41 0 0
New short-term borrowing 0 0 0 0
Interest on short-term borrowing 0 0 0 0
Short-term borrowing repaid 0 0 0 0
Ending cash balance $30.00 $30.00 $30.00 $30.00
Minimum cash balance –30.00 –30.00 –30.00 –30.00
Cumulative surplus (deficit) $0 $0 $0 $0
Beginning short-term investments $34.00 $56.78 $0 $17.37
Ending short-term investments $56.78 $17.37 $19.90 $83.46
B-314 SOLUTIONS
16. a. With a minimum cash balance of $50 million, the short-term financial plan will be:
WILDCAT, INC.
Short-Term Financial Plan
(in millions)
Q1 Q2 Q3 Q4
Beginning cash balance $50.00 $50.00 $50.00 $50.00
Net cash inflow 22.10 –40.55 19.55 65.30
New short-term investments –22.38 0 –16.00 –65.62
Income on short-term investments 0.28 0.73 0 0.32
Short-term investments sold 0 36.38 0 0
New short-term borrowing 0 3.44 0 0
Interest on short-term borrowing 0 0 –0.10 0
CHAPTER 18 B-315
b. And with a minimum cash balance of $10 million, the short-term financial plan will be:
WILDCAT, INC.
Short-Term Financial Plan
(in millions)
Q1 Q2 Q3 Q4
Beginning cash balance $10.00 $10.00 $10.00 $10.00
Net cash inflow 22.10 –40.55 19.55 65.30
New short-term investments –23.18 0–20.31 –65.71
Income on short-term investments 1.08 1.54 0.76 0.41
Short-term investments sold 0 39.01 0 0
New short-term borrowing 0 0 0 0
Interest on short-term borrowing 0 0 0 0
Short-term borrowing repaid 0 0 0 0
B-316 SOLUTIONS
Challenge
17. a. For every dollar borrowed, you pay interest of:
Interest = $1(.019) = $0.019
You also must maintain a compensating balance of 4 percent of the funds borrowed, so for each
dollar borrowed, you will only receive:
Amount received = $1(1 – .04) = $0.96
b. The EAR is the amount of interest paid on the loan divided by the amount received when the loan
is originated. The amount of interest you will pay on the loan is the amount of the loan times the
effective annual interest rate, so:
Interest = $130,000,000[(1.019)4 – 1]
Interest = $10,165,163.62
