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	$	210,000	$	360,000	$	240,000	$	260,000
Total cash disbursements	$	281,000	$	251,000	$	241,000	$	261,000

The company’s beginning cash balance for the upcoming fiscal year will be $26,000. 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.)

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:

Answer 1

Hello,

As provided, shortfall of funds (including minimum balance required) is taken at start of the month. However, interest is payable only at the time of repayment. Hence, even though loan is taken at the start of first quarter, no interest in payable until quarter 2 when loan is repaid. Please refer to below snapshot for solution

Particulars Opening Cash Receipts Cash Disbursement Interest Cost Gross Closing Additional Loan Drawn Loan Repayment Minimum Balance Net Closing 1 Quarter 1 Quarter 2 Quarter 3 Quarter 4 26,000 10,000 60,700 59,700 2,10,000 3,60,000 2,40,000 2,60,000 -2,81,000 1 -2,51,000 1 -2,41,000 1 -2,61,000 -3,300 L J |Author: -45,000 1,15,700 59,700 58,700 ||- Interest is due for 2 quarters 55,000 -55,000 10,000 10,000 10,000 10,000 10,000 60,700 59,700 58,700 Interest rate 3% 3% 3% 3%

в Quarter 1 26000 Quarter 3 =D11 210000 240000 Quarter 2 =C11 360000 -251000 --C8*D13*2 =SUM(D3:06) Particulars Opening Cash Receipts Cash Disbursement Interest Cost Gross Closing Additional Loan Drawn Loan Repayment Minimum Balance Net Closing Quarter 4 =E11 260000 - 261000 =E8*F13*2 =SUM(F3:F6) - 281000 -241000 =D8*E13*2 Author: Interest is due for 2 quarters =SUM(C3:06) I=SUM(E3:56) 55000 =-C8 =D8 =E8 =E10 10000 =SUM(C7:09) =C10 =SUM(07:09) =D10 =SUM(E7:E9) =SUM(F7:59) Interest rate 10.03 =C13 =D13 L=E13