Assume that sales and expenses forecasts for months April, May, June, and July are as follows. 20% of all sales in a month are paid in the same month, 60% are paid in the next month, and 20% are paid in the second month after. All expenses in a month are paid in the same month. There is a $20,000,000 minimum required cash balance at the end of each month, and any shortage from this minimum requirement will be covered by obtaining a loan.Any excess over $20,000,000 will be used to reduce or pay off cumulative loan.Initial cash balance in June is $6,000,000 and there is no cumulative loan at this time.Monthly prorated tax rate is 2%, and monthly interest rate on cumulative loan is 1%. Requirements: Prepare cash budget proforma for months June and July and interpret the result in detail.
Assume that sales and expenses
20% of all sales in a month are paid in the same month, 60% are paid in the next month, and 20% are paid in the second month after. All expenses in a month are paid in the same month. There is a $20,000,000 minimum required cash balance at the end of each month, and any shortage from this minimum requirement will be covered by obtaining a loan.Any excess over $20,000,000 will be used to reduce or pay off cumulative loan.Initial cash balance in June is $6,000,000 and there is no cumulative loan at this time.Monthly prorated tax rate is 2%, and monthly interest rate on cumulative loan is 1%.
Requirements:
Prepare cash budget proforma for months June and July and interpret the result in detail.
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