Homework 3 Read the case KEAFER MANUFACTURING WORKING CAPITAL MANAGEMENT

in Chapter 26 of RWJ. The solution of the first question is given below. Show how we

derive the bold figures a-j. (using the terms denoting the figures)

The cash flow each quarter will consist of the sales collection, minus the suppliers paid,

expenses, dividends, interest, and capital outlays. The cash flows for each quarter will be:

Cash Flow

Q1 Q2 Q3 Q4

Collections from previous quarter $497,700.00

a.$502,740.00 $520,524.00 $558,828.00

Collections from current quarter

sales 291,060.00 b.301,356.00 323,532.00 280,764.00

Payments to suppliers for

previous quarter 233,730.00 c.241,998.00 259,806.00 225,462.00

Payments to suppliers for current

quarter 168,942.00 d.181,374.00 157,398.00 176,223.60

Expenses 198,450.00 205,470.00 220,590.00 191,430.00

Dividends and interest 148,000.00 148,000.00 148,000.00 148,000.00

Outlay 260,000.00

Net cash flow $39,638.00 e. $27,254.00 $201,738.00 $98,476.40

Cash Balance

Q1 Q2 Q3 Q4

Beginning cash balance $149,500.00 $189,138.00 $216,392.00 $14,654.00

Net cash inflow 39,638.00 27,254.00 201,738.00 98,476.40

Ending cash balance $189,138.00 $216,392.00 $14,654.00 $113,130.40

Minimum cash balance 90,000.00 90,000.00 90,000.00 90,000.00

Cumulative surplus deficit $99,138.00 f.$126,392.00 $75,346.00 $23,130.40

The short-term financial plan looks like this:

Short-term Financial Plan

Target cash balance $90,000.00 $90,000.00 $90,000.00 $90,000.00

Net cash inflow 39,638.00 27,254.00 201,738.00 98,476.40

New short-term investments 39,935.50 27,751.18 0 23,674.03

Income on short-term investments g.297.50 497.18 635.93 0

Short-term investments sold 0 0 127,186.68 0

New short-term borrowing 0 0 73,915.39 0

Interest on short-term borrowing 0 0 0 i.886.98

Short-term borrowing repaid 0 0 0 73,915.39

Ending cash balance $90,000.00 $90,000.00 $90,000.00 $90,000.00

Minimum cash balance 90,000.00 90,000.00 90,000.00 90,000.00

Cumulative surplus deficit $0 $0 $0 $0

Beginning short-term investments $59,500.00 $99,435.50 $127,186.68 $0

Ending short-term investments 99,435.50 127,186.68 0 j.23,674.03

Beginning short-term debt 0 0 0 73,915.39

Ending short-term debt $0 $0 h.$73,915.39 $0

The interest calculations for each quarter and the net cash cost are:

Q1: Excess funds at start of quarter of $59,500.00 earns $297.50 in income.

Q2: Excess funds at start of quarter of $99,435.50 earns $497.18 in income.

Q3: Excess funds at start of quarter of $127,186.68 earns $635.93 in income.

Q4: Shortage of funds at start of quarter of $73,915.39 costs $886.98 in interest.

Net cash cost

Q1 $297.50

Q2 497.18

Q3 635.93

Q4 886.98

Cash generated by short-term financing $543.63