Question

Crane Company is preparing a cash summary budget using the data below. They have already prepared their cash receipts and cash payments budget so that data is provided: October November Beginning Cash Balance $16000 Expected Cash $63000 $95000 Receipts Expected Cash Payments $45000 $76000 Management always wants to maintain a $41,492 minimum cash balance at the end of every month. If there is an expected cash shortfall in the budget they will be proactive and borrow money at the first day of the month. That way they will not risk having too low of a balance during the month. They can borrow any amount of money needed. They may not pay loans back in installments. They have to pay them back all at once. The interest rate is 12%. Assume they pay back money, they pay it back on the last day of the month. What is the ending cash balance for November after all loan repayments of principle and interest?

Answer 1

Please find the answer to the question attached:

Step 1

Since a minimum cash balance of 41492 needs to be maintained, calculate the amount of shortfall considering the October figures given

Step 2

Calculate the amount of interest applicable on amount of shortfall (hence amount borrowed as calculated in step 1 ) , and also the total amount that will need to be paid in November including principal and interest

Step 3

Considering opening balance of 41492, and amount payable for borrowing as calculated in step 2, calculate the closing cash balance for November

AN 24%- 00:42 : et's tirst catculate the borvowing Amount consi deving theminimum Cast batance t be maintaimed Be g inning carh batance 16,0 00 3,000 Expectad caih veceipts Atd A5,000 tas Expectod Esh payments balance 41492 Minimum cash Ley shortfatt at end of Oct $7,442 No tet us caleulatete interct On this borroutmg No vember amount: 74-P . O

AN 25% 00:40 : So total amount of prinepat 7, 412 + 7412 7,567 ntere st calcu tate to r Navembur. Now, let us Open i59 cashbalon ce ineluding borowiag $7,442) H Expected eath yeapte 4,442 १5,০७० S76,000 Epected cash payments ten teyogment ean Cwib in krest 7,547 52,915 dlesting latance or Novem ber ... O