Dynamic Mattress decides to lease its new mattress stuffing machines rather than buy them. As a result, capital expenditure in the first quarter is reduced by $50 million, but the company must make lease payments of $2.5 million for each of the four quarters. Assume that the lease has no effect on tax payments until after the fourth quarter. Construct two tables like Tables (a) and (b) showing Dynamic’s cumulative financing requirement and a new financing plan. Check your answer using the “live” spreadsheet on the book’s Web site, www.mhhe.com/bma.

Second table is on nextpage

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First Quarter Second Quarter Third Quarter Fourth Quarter Sources of cash: 511 519.4 670 807.8 Collections on accounts receivable Other 519.4 747 807.8 Total sources Uses of cash: Payments on accounts payable Increase in i Labor and other ex 267 170 136 150 180 136 136 4.5 and dividends 627 637.5 Total uses -141 -72.6 120 170.3 Sources minus uses Calculation of short-term -68.6 170.3 101.7 -188.6 -116 -72.6 -188.6 Cash at start of -141 120 e in cash balance -116 -68.6 Cash at end of Minimum Cumulative financing required balance 141 213.6 93.6 -76.7 TABLE (a) First QuarterSecond Quarter Third Quarter Fourth Quarter New borrowing: Bank loan Stretching payables Total 100.0 16.0 116.0 0.0 92.4 92.4 0.0 0.0 0.0 0.0 0.0 0.0 2 80.0 0.0 80.0 80.0 0.0 87.8 167.8 Bank loan Stretching payables Tota Net new borrowing Plus securities sold Less securities bought Total cash raised Note: Cumulative borrowing and security sales Bank loan Stretching payables Net securities sold Interest payments: Bank loan Stretching payables Interest on securities sold Net interest paid Cash required for operations Total cash required 0.0 0.0 0.0 116.0 25.0 0.0 141.0 0.0 16.0 16.0 76.4 0.0 0.0 76.4 20.0 92.4 112.4 112.4 0.0 0.0 112.4 5 6 10 100.0 16.0 25.0 100.0 92.4 25.0 80.0 0.0 25.0 0.0 0.0 62.8 0.0 0.0 0.0 0.0 141.0 141.0 2.5 0.8 0.5 3.8 72.6 76.4 2.5 4.6 0.5 7.6 120.0 112.4 2.0 0.0 0.5 2.5 170.3 167.8 13 15 16 TABLE (b)