Rework Problem 14 assuming:

a. Wildcat maintains a minimum cash balance of $45 million.

b. Wildcat maintains a minimum cash balance of $15 million. Based on your answers in (a) and (b), do you think the firm can boost its profit by changing its cash management policy? Are there other factors that must be considered as well? Explain.

Data from Problem 14

Wildcat, Inc., has estimated sales (in millions) for the next four quarters as:

Sales for the first quarter of the year after this one are projected at $225 million. Accounts receivable at the beginning of the year were $76 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 forecasted sales, and suppliers are normally paid in 36 days. Wages, taxes, and other expenses run about 30 percent of sales. Interest and dividends are $15 million per quarter. Wildcat plans a major capital outlay in the second quarter of $90 million. Finally, the company started the year with a $68 million cash balance and wishes to maintain a $30 million minimum balance.

Transcribed Image Text:

Sales Q1 $210 Q2 $180 Q3 $240 Q4 $270