Adrian Fudge of the Fudge Corporation forecast the firm's financing needs quarter (October through December) following observations relative to pk and disbursements:
• Interest on a $75,000 bank note (due next March) at an 8 percent annual rate is payable in December for the three-month period just ended.
• The firm follows a policy of pE dividends.
• Actual historical and future pr as follows:
• The firm has a monthly rental expense of $ 5,000.
• Wages and salaries for the com estimated at $25,000 per month.
• Of the firm's sales, 25 percent i the month of the sale, 35 percE after the sale, and the remainin months after the sale.
• Merchandise is purchased one sales month and is paid for in t sold. Purchases equal 75 perc€ firm's cost of goods sold is alsc sales.
• Tax prepayments are made qua payment of $10,000 in October
• Utility costs for the firm average 3 percent of sales and are paid in the month they are incurred.
• Depreciation expense is $20,000 annually.
Question 1 Prepare a monthly cash budget for the three-month period ending in December.
Question 2 If the firm's beginning cash balance for the budget period is $7,000, and this is its desired minimum balance, determine when and how much the firm will need to borrow during the budget period The firm has a $50,000 line of credit with its bank, with interest (10 percent annual rate) paid monthly. For example, interest on a loan taken out at the end of September would be paid at the end of October and every month thereafter so long as the loan was outstanding.