Cash Budget

(in millions of dollars)

Q1 Q2 Q3 Q4 Q5

Sales $ 1,210 $ 1,510 $ 1,560 $ 1,360 $ 1,610

Total cash collections $ 1,210 $ 1,260 $ 1,310 $ 1,310

In any given period, Mooneys purchases from suppliers generally account for 76% of the expected sales in the next period, and wages, supplies, and taxes are expected to be 15% of next periods sales.

In the 3rd quarter, Mooney expects to expand one of its plants, which will require an additional $1,076 million investment.

Every quarter, Mooney pays $35 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 $15 million at all times.

1. What is the net cash inflow that Mooney expects in Q2?

2. If Mooney is beginning this year with a cash balance of $38 million and expects to maintain a minimum target cash balance of at least $15 million, what will be its likely cash balance at the end of the year (after Q4)?

3. What is the maximum investable funds that the firm expects to have in the next year?

4. What is the largest cash deficit that the firm expects to suffer in the next year?

5. T or F: If a firm changes it credit policy and allows customers to pay in 90 days instead of 60 days, and everything else remains the same, the net cash flow in the next quarter is likely to decrease.