Reference no: EM132518244

Mooney Equipment is putting together its cash budget for the following year and has forecasted expected cash collections over the next five quarters (one year plus the first quarter of the next year). The cash collection estimates are based on sales projections and expected collection of receivables. The sales and cash collection estimates are shown in the following table (in millions of dollars):

                                           Q1               Q2            Q3           Q4           Q5

Sales                           $1,210        $1,510  $1,560       $1,360   $1,610

Total cash collections       $1,210       $1,260       $1,310           $1,310

You also have the following information about Mooney Equipment:

1. In any given period, Mooney's purchases from suppliers generally account for 78% of the expected sales in the next period, and wages, supplies, and taxes are expected to be 15% of next period's sales.
2. In the third quarter, Mooney expects to expand one of its plants, which will require an additional $1,078 million investment.
3. Every quarter, Mooney pays $55 million in interest and dividend payments to long-term debt and equity investors.
4. Mooney prefers to keep a minimum target cash balance of at least $16 million at all times.

Using the preceding information, answer the following questions: (Note: Round your answers to the nearest millionth dollar.)

Question 1: What is the net cash inflow that Mooney expects in the fourth quarter (Q4)?

a. -$243 million

b. -$250 million

c. -$1,088 million

d. -$246 million

Question 2: If Mooney is beginning this year with a cash balance of $39 million and expects to maintain a minimum target cash balance of at least $16 million, what will be its likely cash balance at the end of the year (after Q4)?

a. -$457 million

b. -$211 million

c. -$1,788 million

d. -$1,545 million

Question 3: What is the maximum investable funds that the firm expects to have in the next year?

a. -$227 million

b. -$114 million

c. -$159 million

d. -$193 million

Question 4: What is the largest cash deficit that the firm expects to suffer in the next year?

a. -$1,082 million

b. -$1,804 million

c. -$1,263 million

d. -$902

Question 5: True or False: If a firm changes its credit policy and allows customers to pay in 90 days instead of 60 days, and everything else remains the same, the net cash flow in the next quarter is likely to decrease.

a. False

b. True