Garden Depot is a retailer that is preparing its budget for the upcoming fiscal
ID: 2581961 • 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: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total cash receipts $ 180,000 $ 330,000 $ 210,000 $ 230,000 Total cash disbursements $ 260,000 $ 230,000 $ 220,000 $ 240,000 The company’s beginning cash balance for the upcoming fiscal year will be $20,000. 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.) Work would be much appreciated please!
Explanation / Answer
Garden depot cash budget
Particulars
Q1
Q2
Q3
Q4
Beginning balance
$20000
$10000
$35800
$25800
Add: Cash receipts
180000
330000
210000
230000
Total cash available
200000
340000
245800
255800
Less: cash disbursements
260000
230000
220000
240000
Excess/deficiency
-60000
110000
25800
15800
Borrowings
70000
Repayment
-70000
Interest
-4200
Total financing
70000
-74200
25800
15800
Ending bal. of cash
$10000
$35800
$25800
$15800
Notes:
Minimum cash balance required is $10000. Deficit is $60000 in quarter 1. Hence to maintain balance of $10000, $70000 needs to be borrowed.
Interest: $70000 * 3% * 2 quarters = $4200. (As interest 3% is per quarter and amount is repaid at the end of quarter 2, interest is calculated for 2 quarters)
Particulars
Q1
Q2
Q3
Q4
Beginning balance
$20000
$10000
$35800
$25800
Add: Cash receipts
180000
330000
210000
230000
Total cash available
200000
340000
245800
255800
Less: cash disbursements
260000
230000
220000
240000
Excess/deficiency
-60000
110000
25800
15800
Borrowings
70000
Repayment
-70000
Interest
-4200
Total financing
70000
-74200
25800
15800
Ending bal. of cash
$10000
$35800
$25800
$15800
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