Jim Heston has been working on Austin Paints' cash budget for the coming year. Based on his

Question:

Jim Heston has been working on Austin Paints' cash budget for the coming year. Based on his projections for March, the beginning cash balance will be $50,200; cash collections will be $700,000; and cash disbursements will be $710,300. Austin Paints desires to maintain a $50,000 minimum cash balance. The company has a 10 percent 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). Accrued interest is paid at the time of repayment.

Required

a. How much will Austin Paints need to borrow from the bank at the beginning of March?

b. Assuming that Austin Paints has $7,000 in excess cash budgeted for April, how much principal will the company plan to repay? How much interest will be repaid in April?

Cash Budget
A cash budget is an estimation of the cash flows for a business over a specific period of time. These cash inflows and outflows include revenues collected, expenses paid, and loans receipts and payment. Its primary purpose is to provide the... Line of Credit
A line of credit (LOC) is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. A LOC is...