Question

A) Assume that Harvest Oaks has correctly computed its expected cash receipts and disbursements, and correctly entered them into the cash budget in Part 2.

B) Harvest Oaks’ beginning balance of cash on April 1 is $450,000.

C) Harvest Oaks wants to maintain a minimum cash balance of $400,000. The company has an agreement with a local bank that allows the company to borrow money in any increment at the beginning of each month. The interest rate on these loans is 1% per month and is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Cash Budget
	April	May	June	Quarter
Beginning cash balance
Total cash receipts	2,225,000	2,450,000	2,700,000	7,375,000
Total cash available
Less total cash disbursements	2,500,000	2,700,000	2,200,000	7,400,000
Excess (deficiency) of cash available over disbursements
Financing:
Borrowings
Repayments
Interest
Total financing
Ending cash balance				413,250

Answer 1

Cash Budget
	April	May	June	Quarter
Beginning cash balance	$450,000	$400,000	$400,000	$450,000
Total cash receipts	$2,225,000	$2,450,000	$2,700,000	$7,375,000
Total cash available	$2,675,000	$2,850,000	$3,100,000	$7,825,000
Less total cash disbursements	$2,500,000	$2,700,000	$2,200,000	$7,400,000
Excess (deficiency) of cash available over disbursements	$175,000	$150,000	$900,000	$425,000
Financing:
Borrowings	$225,000	$250,000		$475,000
Repayments	$0	$0	($475,000)	($475,000)
Interest	$0	$0	($7,000)	($7,000)
Total financing	$225,000	$250,000	($482,000)	($7,000)
Ending cash balance	$400,000	$400,000	$418,000	$418,000

--April Borrowing Interest = $ 225000 x 1% x 2 months = $ 4500
--May Borrowing interest = $ 250000 x 1% = $ 2500
--Total interest = 4500 + 2500 = $ 7000