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	$290,000	$440,000	$320,000	$340,000
Total cash disbursements	$337,000	$307,000	$297,000	$317,000

	Garden Depot Cash Budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Beginning cash balance Total cash receipts Total cash available Less total cash disbursements Excess of cash available over disbursements Financing: Borrowings Repayments Interest Total financing Ending cash balance

The company’s beginning cash balance for the upcoming fiscal year will be $42,000. 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.

Answer 1

GARDEN Depot Cash Budget 1 Quarter 2 Quarter 3 Quarter 4 Quarter Beginning cash balance 42000 10000 127100 150100 Total Cash receipts 290000 440000 320000 340000 Total cash available 332000 450000 447100 490100 Less: Total cash disbursements 337000 307000 297000 317000 Excess of cash available over disbursements -5000 143000 150100 173100 Financing: Borrowing 15000 Repayment - 15000 Interest -900 Total financing 15000 15900 Ending cash balance 10000 127100 150100 173100 Year 42000 1390000 1432000 1258000 174000 15000 - 15000 -900 -900 173100 Interest = 15000 + 3% *2 = 900