Garden Depot is a retailer that is preparing its budget for the upcoming fiscal
ID: 2414899 • Letter: G
Question
Garden Depot 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 $47,000. 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. Complete the company's cash budget for the upcoming fiscal year. (Cash deficiency, repayments, and interest, should be indicated by a minus sign.)Explanation / Answer
Garden Depot Cash Budget 1st quarter 2nd quarter 3rd quarter 4th quarter Year Beginning cash balance 47000 10000 73560 102560 47000 Total cash receipts 290000 410000 340000 360000 1400000 Total cash available 337000 420000 413560 462560 1447000 Less total cash disbursements 351000 321000 311000 331000 1314000 Excess of cash available over disbursements -14000 99000 102560 131560 319120 Financing Borrowings 24000 0 0 0 24000 Repayments -24000 0 0 -24000 Interest -1440 0 0 -1440 Total financing 24000 -25440 0 0 -1440 Ending cash balance 10000 73560 102560 131560 317680 Financing working In the 1st qaurter Garden depot is falling short of the minimum closing balance required Hence for maintaining closing balance of 10000 , it needs to borrow (14000 + 10000 = 24000) from the local bank This loan would be repaid in end of 2nd quarter ie the priniciple is outstanding for 2 quarters Interest = 24000 * 3%* 2 = 1440
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