Concept explainers
Preparing a financial budget—
Leichter Auto Parts, a family-owned auto parts store, began January with $10,500 cash. Management
Leichter Auto Parts’s bank requires a $10,000 minimum balance in the store’s checking account. At the end of any month when the account balance falls below $10,000, the bank automatically extends credit to the store in multiples of $1,000. Leichter Auto Parts borrows as little as possible and pays back loans in quarterly installments of $2,000, plus 4% APR interest on the entire unpaid principal. The first payment occurs three months after the loan.
Requirements
- 1. Prepare Leichter Auto Parts’s cash budget for January and February.
- 2. How much cash will Leichter Auto Parts borrow in February if collections from customers that month total $14,200 instead of $15,200?
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