Question

Kayak Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash payments (excluding cash payments for loan principal and interest payments) for the first three months of next year.

	Cash Receipts			Cash payments
January	$	525,000		$	471,800
February		411,000			357,800
March		462,000			534,000

According to a credit agreement with its bank, Kayak requires a minimum cash balance of $40,000 at each month-end. In return, the bank has agreed that the company can borrow up to $150,000 at a monthly interest rate of 1%, 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 any cash in excess of $40,000 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 January, February, and March. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign.)

	KAYAK COMPANY Cash Budget For January, February, and March January February March Beginning cash balance $40,000 Total cash available Preliminary cash balance Ending cash balance Loan balance Loan balance - Beginning of month $80,000 $0 Additional loan (loan repayment) Loan balance - End of month

Answer 1

Amounts in ($)

Cash Budget Beginning cash balance (+) Cash receipts Total cash available (-) Cash payments (-) Interest payments Preliminary cash balance (+)/(-) Loan Addition / (Repayment) Ending cash balance January February March 40,000.00 40,000.00 65,324.00 525,000.00 411,000.00 462,000.00 565,000.00 451,000.00 527,324.00 471,800.00 357.800.00 534.000.00 800.00 276.00 92,400.00 92.924.00 (6.676.00) (52,400.00) (27.600.00) 46,676.00 40,000.00 65,324.00 40,000.00 Loan balance : Loan balance - Beginning of month Additional loan (loan repayment) Loan balance - End of month January February March 80,000.00 27,600.00 (52,400.00) (27,600.00) 46,676.00 27,600.00 46,676.00 Calcualtion of Interest : March Loan Balance Interest @ 1% January 80,000.00 800.00 February 27,600.00 276.00

Explanation : 1 2 Additional Loan paid as we need to maintain only $40,000 cash balance. Paid balance Loan as we have excess cash balance. Additional Loan taken as we need to maintain $40,000 cash balance. 3