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Ellingham plc opens a Spanish subsidiary, which starts operating on 2 January 2014. On 2 January 2014 it has to

buy a machine costing €30m, partly financed by a €20m bank loan repayable in instalments of €2m every 15 July and 15 January over 5 years. Financial expenses, payable on a half-yearly basis, are as follows: 2014 June 1 Dec 0.9 2015 June 0.8 Dec 0.7 2016 June 0.6 Dec 0.5 2017 June 0.4 Dec 0.3 2018 June 0.2 Dec 0.1 Profits are tax free. Sales will be €12 m per month. A month's inventory of finished products will have to be built up. Customers pay at 90 days. The company is keen to have a month's worth of advance purchases and, accordingly, plans to buy two months' worth of supplies in January 2011. Requirements in a normal month amount to €4m. The supplier grants the company a 90-day payment period. Other costs are: ◦ ◦ personnel costs of €4m per month; shipping, packaging and other costs amounting to €2m per month and paid at 30 days. These costs are incurred from 1 January 2014. Draw up a monthly and an annual cash flow plan. How much cash will the subsidiary need at the end of each month over the first year? And if operations are identical, how much will it need each month over 2015? What is the change in the cash position over 2015 (no additional investments are planned)?

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