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	$	320,000	$	440,000	$	370,000	$	390,000
Total cash disbursements	$	372,000	$	342,000	$	332,000	$	352,000

The company’s beginning cash balance for the upcoming fiscal year will be $27,000. 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.)

Answer 1

	Garden Depot
	Cash Budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Beginning cash balance	27000	10000	70900	108900	27000
Total cash receipts	320000	440000	370000	390000	1520000
Total cash available	347000	450000	440900	498900	1547000
Less total cash disbursements	372000	342000	332000	352000	1398000
Excess of cash available over disbursements	-25000	108000	108900	146900	149000
Financing:
Borrowings	35000	0	0	0	35000
Repayments	0	-35000	0	0	-35000
Interest	0	-2100	0	0	-2100
Total financing	35000	-37100	0	0	-2100
Ending cash balance	10000	70900	108900	146900	146900
Interest = 35000*3%*2 = $2100