Question

Intro

It is the beginning of January. Actual sales for the previous quarter (Q4) and estimated sales for the next five quarters are as follows (in $ million):

Intro It is the beginning of January. Actual sales for the previous quarter (Q4) and estimated sales for the next five quarters are as follows (in $ million): Quarter Q4 Q1 Q2 Q3 Q4 Q1 Sales 24 25.2 26.46 27.78 29.17 30.63 You collect 50% of sales in the current quarter and the remainder in the following quarter. You expect to spend 40% of the following quarter's sales on purchases of components from suppliers, and to pay 70% of those purchases in the current quarter and the remainder in the following quarter. Wages and other expenses add up to 30% of each quarter's sales. You have to pay $4 million in interest and dividends each quarter, and plan to spend $7 million on new machinery in Q3. Assume that each quarter has 90 days, sales occur evenly throughout the quarter and all other cash flows occur at the end of the quarter. Part 1 What is your expected net cash flow in Q1 (in $ million)? Answer: Expected net cash flow in Q1: $ 2.6072 million Correct ✓ Q1 Collection of current quarter sales ( 25.2 x 0.5 ) 12.6 millions Collection of previous quarter sales ( 24 x 0.5) 12.0 Total Cash Inflows 24.6 Cash payments for Purchases on components Current quarter purchases ( 26.46 x 40% x 70 % ) 7.4088 Previous quarter purchases ( 25.2 x 40% x 30 % ) 3.024 10.4328 Wages and other expenses ( 25.2 x 30 % ) 7.56 Interest and dividends 4.00 Total Cash Outflows 21.9928 Expected Net Cash Flow $ 2.6072 million Correct ✓ Part 2 What is your expected net cash flow in Q2 (in $ million)? Expert Answer Part 2 : Answer : Expected net cash flow in Quarter 2 : $ 2.9384 millions.Correct ✓ Q2 Cash Inflows Collection of current quarter sales ( 26.46 x 0.5 ) 13.23 Collection of previous quarter sales ( 25.2 x 0.5 ) 12.6 Expected Cash Inflows $ 25.83 millions Cash Payments for Purchase of components Current quarter purchase ( 27.78 x 40 % x 70 % ) 7.7784 Previous quarter purchase ( 26.46 x 40 % x 30 % ) 3.1752 10.9536 Wages and other expenses ( 26.46 x 30 % ) 7.938 Interest and dividends 4.00 Expected Cash Outflows 22.8916 Expected Net Cash Flow $ 2.9384 millions Correct ✓

Part 3

What is your expected net cash flow in Q3 (in $ million)?

Answer 1

Part 3

		Q3 (in millions)
Cash Inflows
Collection of current quarter sales (27.78*0.5)	13.89
Collection of previous quarter sales (26.46*0.5)	13.23
Expected Cash Inflows		27.12
Cash Payments for
Purchase of components
Current quarter purchase (29.17*40%*70%)	8.1816
Previous quarter purchase (27.78*40%*30%)	3.3336	11.5152
Wages and other expenses (27.78*30%)		8.334
Interest and dividends		4.00
New machinery		7.00
Expected Cash Outflows		30.8492
Expected Net Cash Flow		-3.7292

Net outflow is $3.7292 millionin quarter 3. Outflow is more than the inflow.