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 $188,000 $349,000 $217,000 $242,000 Total cash disbursements $244,000 $226,000 $205,000 $224,000 The company's beginning cash balance for the upcoming fiscal year will be $26,400. The company requires a minimum cash balance of $10,200 and may borrow any amount needed from a local bank at a quarterly interest rate of 1.6%. 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
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Beginning cash balance	26,400	10,200	92,126	1,04,126	26,400
Total cash receipts	1,88,000	3,49,000	2,17,000	2,42,000	9,96,000
Total cash available	2,14,400	3,59,200	3,09,126	3,46,126	10,22,400
Less: Total cash disbursements	2,44,000	2,26,000	2,05,000	2,24,000	8,99,000
Excess of cash available over disbursements	-29,600	1,33,200	1,04,126	1,22,126	1,23,400
Financing
Borrowings	39,800				39,800
Repayments		-39,800			-39,800
Interests		-1,274			-1,274
Total Financing	39,800	-41,074			-1,274
Ending cash balance	10,200	92,126	1,04,126	1,22,126	1,22,126

*Interest for 2 quarters = $1,274 [$39,800 x 1.60% x 2]

**The Excess of cash available over disbursements for the first quarter is -$29,600 and the Ending cash balance is $10,200, therefore, the additional Borrowings Required will be $39,800 to maintain a ending cash balance of $10,200 ($29,600 + $10,200)