Question

Paul White has been working on Oriole Paints' cash budget for the coming year. Based on his projections for March, the beginning cash balance will be $42,700; cash collections will be $530,000; and cash disbursements will be $564,000. Oriole Paints desires to maintain a $38,000 minimum cash balance. The company has a 6% open line of credit with its bank, which provides short-term borrowings in $500 increments. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in $500 increments). When partial payments are made against the line of credit, accrued interest applicable to the full amount due through that date is paid along with the partial principal repayment.

(a)

How much will Oriole Paints need to borrow from the bank at the beginning of March?

Oriole Paints should borrow

$enter the amount the company should borrow in dollars

(b)

Oriole anticipates having a positive $20,000 net cash flow from April activities. How much of the line of credit from March can be repaid? How much interest will be repaid in April?

	Principal to be repaid		$enter the principal to be repaid in dollars
	Interest to be repaid		$enter the interest to be repaid in dollars

Answer 1

A) Opening balance :$42700

Add : Cash collections: $530000

Less: Cash disbursements:$564000

Available cash : $8700

Minimum balance required :$38000

Shortfall in cash: $29300

Bank borrowings to be made:$29500

B) Interest for 2 months on bank borrowing:

$29500*6%*2/12= $295

Interest to be repaid:$295

Since principal to be repaid in incremental of $500

Excess cash available :$20,000-$295=$19705

Principal to be repaid:$19500

(repaid in incremental of $500)

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