What is the procedure and solution for this problem? Cash Budget [L08] Forest Ou

Question

What is the procedure and solution for this problem?

Cash Budget [L08] Forest Outfitters is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows: The company's beginning cash balance for the upcoming fiscal year will be $50,000. The company requires a minimum cash balance of $30,000 and may borrow any amount needed for 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 loan, 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. Required: Prepare the company's cash budget for the upcoming fiscal year.

Explanation / Answer

Hi,

Please find the answer as follows;

Notes:

Borrowing to maintain a cash balance of 30000 in 1st quarter would be 170000 (170000 - 140000)

Interest = 170000*12%*2/4 = 10200

Thanks.

Cash Budget
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Opening Cash Balance 50000 30000 69800 49800 50000 Total Cash Receipts 340000 670000 410000 470000 1890000 Total Cash Available 390000 700000 479800 519800 1940000 Total Cash Disbursements 530000 450000 430000 480000 1890000 Excess/(Deficiency) -140000 250000 49800 39800 50000 Financing 170000 0 0 0 170000 Repayments 0 -170000 0 0 -170000 Interest 0 -10200 0 0 -10200 Total Financing 170000 -180200 0 0 -10200 Ending Cash Balance 30000 69800 49800 39800 39800

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