4. Cash budget

Mooney Equipment is putting together its cash budget for the following year and has forecasted expected cash collections over the next five quarters (one year plus the first quarter of next year). The cash collection estimates are based on sales projections and expected collection of receivables. The sales and cash collection estimates are shown in the following table (in millions of dollars):

	Q1	Q2	Q3	Q4	Q5
Sales	$1,430	$1,730	$1,780	$1,580	$1,830
Total cash collections	$1,430	$1,480	$1,530	$1,530

You also have the following information about Mooney Equipment:

	You are at the end of the current year, and Q1 is the next period.
	In any given period, Mooneys purchases from suppliers generally account for 80% of the expected sales in the next period, and wages, supplies, and taxes are expected to be 15% of the next periods sales
	In the third quarter, Mooney expects to expand one of its plants, which will require an additional $1,080 million investment.
	Every quarter, Mooney pays $50 million in interest and dividend payments to long-term debt and equity investors.
	Mooney prefers to keep a minimum target cash balance of at least $16 million at all times.

The net cash inflow that Mooney expects in the second quarter (Q2)	1101,259,264,261
Mooneys likely cash balance at the end of the year (after Q4). (Hint: Assume that at the beginning of the year, Mooneys cash balance is $40 million and it expects to maintain a minimum target cash balance of at least $16 million.)	485, 1845, 1586, 224
The maximum investable funds that the firm expects to have in the next year.	204, 168, 240, 120
The largest cash deficit that the firm expects to suffer in the next year.	1303, 930, 1861, 1117

True or False: One of the firms suppliers offers payment terms of 3/10, net 30 and the other offers net 30. If the firm chooses to go with the one that offers 3/10, net 30 and everything else remains the same, the firms net cash flow is likely to increase in a monthly cash budget after a few months.

False

True