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
Collections from previous quarter
Collections from current quarter
sales
Payments to suppliers for
previous quarter
Payments to suppliers for current
quarter
Expenses
Dividends and interest
Outlay
Net cash flow

Beginning cash balance

Net cash inflow
Ending cash balance
Minimum cash balance
Cumulative surplus deficit

Q2

Q3

Q4

$497,700.00

a.$502,740.00

$520,524.00

$558,828.00

291,060.00

b.301,356.00

323,532.00

280,764.00

233,730.00

c.241,998.00

259,806.00

225,462.00

168,942.00 d.181,374.00
198,450.00
205,470.00
148,000.00
148,000.00

176,223.60
191,430.00
148,000.00

e. $27,254.00

157,398.00
220,590.00
148,000.00
260,000.00
$201,738.00

Cash Balance
Q1
Q2
$149,500.00
$189,138.00
39,638.00
27,254.00
$189,138.00
$216,392.00
90,000.00
90,000.00
$99,138.00 f.$126,392.00

Q3
$216,392.00
201,738.00
$14,654.00
90,000.00
$75,346.00

Q4
$14,654.00
98,476.40
$113,130.40
90,000.00
$23,130.40

$39,638.00

$98,476.40

The short-term financial plan looks like this:

Target cash balance

Net cash inflow
New short-term investments
Income on short-term investments
Short-term investments sold
New short-term borrowing
Interest on short-term borrowing
Short-term borrowing repaid
Ending cash balance
Minimum cash balance
Cumulative surplus deficit
Beginning short-term investments
Ending short-term investments
Beginning short-term debt
Ending short-term debt

Short-term Financial Plan

$90,000.00
$90,000.00
39,638.00
27,254.00
39,935.50
27,751.18
497.18
g.297.50
0
0
0
0
0
0
0
0
$90,000.00
$90,000.00
90,000.00
90,000.00
$0
$0
$59,500.00
99,435.50
0
$0

$99,435.50
127,186.68
0
$0

$90,000.00
201,738.00
0
635.93
127,186.68
73,915.39
0
0
$90,000.00
90,000.00
$0

$90,000.00
98,476.40
23,674.03
0
0
0

$127,186.68
0
0

$0

i.886.98
73,915.39
$90,000.00
90,000.00
$0

j.23,674.03

h.$73,915.39

73,915.39
$0

The interest calculations for each quarter and the net cash cost are:
Q1:
Q2:
Q3:
Q4:

Excess funds at start of quarter of

Excess funds at start of quarter of
Excess funds at start of quarter of
Shortage of funds at start of quarter of
Net cash cost
Q1
Q2
Q3
Q4
Cash generated by short-term financing

$59,500.00
$99,435.50
$127,186.68
$73,915.39

$297.50
497.18
635.93
886.98
$543.63

earns
earns
earns
costs

$297.50
$497.18
$635.93
$886.98

in income.
in income.
in income.
in interest.