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 Receipts $63000 $95000 Expected Cash Payments $45000 $76000 Management always wants to maintain a $40,438 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 if 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? Round your answer to the nearest whole dollar.

Ending cash balance for November = $52,869

Explanation:

Crane Company

Cash Budget

October

November

beginning cash balance

$16,000

$40,539

expected cash receipts

$63,000

$95,000

Total available cash

$79,000

$135,539

expected cash payments

$45,000

$76,000

excess of available cash over payments

$34,000

$59,539

financing:

Borrowings

$6,539

$0

Repayments

$0

($6,539)

Interest

$0

($131.00)

Ending cash balance

$40,539

$52,869

The ending cash balance shortfall in October $40,539 - $34,000 = $6,539

Hence, the amount to be borrowed = $6,539

In November, the company has enough funds to meet its ending cash balance as well as pay-off the borrowed amount with interest.

Interest for 2 month = 6,539 x 12% x 2/12 = $130.78 or $131 (rounded off)

Note: cash is borrowed in the first day of the month, assuming the company borrows cash on October 1, and repays on November 30, interest is payable for two months.

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