The company’s beginning cash balance for the upcoming fiscal year will be $36,00

Question

The company’s beginning cash balance for the upcoming fiscal year will be $36,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded.

Required:

Prepare the company’s cash budget for the upcoming fiscal year. (Repayments, and interest, should be indicated by a minus sign.)

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total cash receipts $ 260,000 $ 410,000 $ 290,000 $ 310,000 Total cash disbursements $ 316,000 $ 286,000 $ 276,000 $ 296,000

Explanation / Answer

Cash Budget Quarter 1 Quarter 2 Quarter 3 Quarter 4 Begning balance 36000 10000 162200 176200 Cash Receipts 260000 410000 290000 310000 Total cash available 296000 420000 452200 486200 Cash Disbursements 316000 286000 276000 296000 Total Cash Disbursements 316000 286000 276000 296000 Cash available minus cash payments -20000 134000 176200 190200 Financing activity: Loan taken 30000 0 0 0 (20000+10000) Loan Repayment 0 -30000 0 0 Interest -1800 (30000*3%*2) Closing balance 10000 162200 176200 190200

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