Let's break the into structured steps for both parts (a) and (b): --- # **Part a: Cash Budget for Wildworld** ## **Step 1: Cash Receipts from Sales** - **Sales Collection:** 45-day collection period ≈ 1.5 months (quarterly: collect 2/3 of current quarter's sales, 1/3 from previous quarter). | Quarter | Sales ($m) | Cash Collected This Quarter ($m) | |---------|-------------|------------------------------------------------| | Q1 | 170 | (1/3 * 71) + (2/3 * 170) = 23.67 + 113.33 = **137.00** | | Q2 | 185 | (1/3 * 170) + (2/3 * 185) = 56.67 + 123.33 = **180.00** | | Q3 | 200 | (1/3 * 185) + (2/3 * 200) = 61.67 + 133.33 = **195.00** | | Q4 | 225 | (1/3 * 200) + (2/3 * 225) = 66.67 + 150.00 = **216.67** | For Q1, the previous quarter's receivables are given as $71m. --- ## **Step 2: Cash Payments to Suppliers** - **Purchases:** 45% of next quarter’s sales. - **Payments Lag:** Paid in 36 days (~.4 quarter); assume payment for 40% of current quarter and 60% of previous quarter’s purchases. \[ \text{Purchases in Q}_t = .45 \times \text{Sales in Q}_{t+1} \] \[ \text{Cash Paid in Q}_t = .6 \times \text{Purchases in Q}_{t-1} + .4 \times \text{Purchases in Q}_t \] - **Purchases:** - Q1: .45 × 185 = **83.25** - Q2: .45 × 200 = **90.00** - Q3: .45 × 225 = **101.25** - Q4: .45 × 180 (next year's Q1) = **81.00** - **Payments:** - Assume purchases at end of last year are .45 × 170 = **76.50** - Q1: .6×76.5 + .4×83.25 = 45.90 + 33.30 = **79.20** - Q2: .6×83.25 + .4×90 = 49.95 + 36 = **85.95** - Q3: .6×90 + .4×101.25 = 54 + 40.5 = **94.50** - Q4: .6×101.25 + .4×81 = 60.75 + 32.4 = **93.15** --- ## **Step 3: **Other Expenses** - Wages, taxes, etc = 25% of quarterly sales | Quarter | Sales ($m) | 25% of Sales ($m) | |---------|------------|-------------------| | Q1 | 170 | 42.5 | | Q2 | 185 | 46.25 | | Q3 | 200 | 50. | | Q4 | 225 | 56.25 | --- ## **Step 4: Interest & Dividend** - Interest and dividend = $14m per quarter --- ## **Step 5: Capital Outlay** - Q2: $85m --- ## **Step 6: Cash Budget Table** | Quarter | Opening Cash | Receipts | Payments to Suppliers | Wages, Taxes | Interest/Dividend | Capital Outlay | Closing Cash | |---------|--------------|----------|----------------------|--------------|-------------------|----------------|--------------| | Q1 | 54 | 137 | 79.20 | 42.5 | 14 | | 55.3 | | Q2 | 55.3 | 180 | 85.95 | 46.25 | 14 | 85 | 4.1 | | Q3 | 4.1 | 195 | 94.5 | 50 | 14 | | 40.6 | | Q4 | 40.6 | 216.67 | 93.15 | 56.25 | 14 | | 93.87 | --- # **Part b: Short-Term Financial Plan and Net Cash Cost** ## **1. Borrowing/Investing Decisions** - **Minimum cash balance required:** $30m. - If closing cash < $30m, borrow to make up difference. - If > $30m, invest excess. | Quarter | Closing Cash | Borrow (+) / Invest (–) ($m) | |---------|--------------|-------------------------------| | Q1 | 55.3 | Invest 25.3 | | Q2 | 4.1 | Borrow 25.9 | | Q3 | 40.6 | Invest 10.6 | | Q4 | 93.87 | Invest 63.87 | ## **2. Interest Calculations (Simple, Quarterly)** - **Borrowing:** 3% per quarter. - **Investing:** 2% per quarter. | Quarter | Borrow/Invest ($m) | Interest/Income ($m) | |---------|--------------------|----------------------| | Q1 | –25.3 (invest) | –.506 | | Q2 | +25.9 (borrow) | +.777 | | Q3 | –10.6 (invest) | –.212 | | Q4 | –63.87 (invest) | –1.277 | ## **3. Net Cash Cost for the Year** \[ \text{Net Cash Cost} = \text{Total Interest Paid} - \text{Total Investment Income Earned} \] - **Interest paid (Q2 borrowing):** $.777m - **Investment income (Q1, Q3, Q4):** $.506m + $.212m + $1.277m = $1.995m \[ \text{Net Cash Cost} = .777 - 1.995 = \boxed{-1.22 \text{ million}} \] --- # **Final Summary** **a.** The cash budget shows that Wildworld’s cash balance is above the minimum most quarters except Q2, where borrowing is required due to a major capital outlay. **b.** For the year, Wildworld earns investment income on excess cash in three quarters and pays interest on borrowing in Q2. The net cash position (interest paid minus investment income) is **–$1.22 million**, meaning Wildworld earns more in investment income than it pays in interest for the year. --- **If you need step-by-step calculations for each row, let me know!**

# **Part a: Cash Budget for Wildworld - Summary** The cash budget indicates that Wildworld maintains a sufficient cash balance in most quarters, with a significant cash outflow in Q2 due to a capital outlay. In Q2, the company borrows funds to meet its minimum cash requirement, resulting in a low closing cash balance. # **Part b: Short-Term Financial Plan and Net Cash Cost - Summary** Wildworld can efficiently manage its cash flow by investing excess funds and borrowing when necessary, leading to a net cash cost of **–$1.22 million** for the year. This indicates that the company earns more from investments than it spends on interest, contributing positively to its financial position.