Kayak Co. budgeted the following cash receipts (excluding cash receipts from loa

Question

Kayak Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash disbursements (excluding cash disbursements for loan principal and interest payments) for the first three months of next year. According to a credit agreement with the company's bank, Kayak promises to have a minimum cash balance of $40,000 at each month-end. In return, the bank has agreed that the company can borrow up to $140,000 at an annual interest rate of 12%, paid on the last day of each month. The interest is computed, based on the beginning balance of the loan for the month. The company repays loan principal with available cash on the last day of each month. The company has a cash balance of $40,000 and a loan balance of $80,000 at January 1. Prepare monthly cash budgets for each of the first three months of next year.

Explanation / Answer

Cash Budget January February March Beginning cash balance 40000 40000 67460 Cash receipts 523000 410500 451000 Total cash available 563000 450500 518460 Cash disbursements 469800 357300 524000 Preliminary cash balance 93200 93200 -5540 Interest payment ( 80000 *12%/12) 800 260 0 Additional loan/ (loan repayment) -54000 -26000 45540 Ending cash balance 40000 67460 40000 Loan Balance Loan balance - beginning of month 80000 26000 0 Additional loan/ (loan repayment) -54000 -26000 45540 Loan balance - end of month 26000 0 45540

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