Cash budget analyst

How to construct an annual cash budget beginning in June for the year and make suggestions for the meeting with the bank to negotiate the extension of the lending agreement.1. Is the company'scurrent borrowing limit sufficientor will the cap need to be renegotiated with the bank?

2. Is the company expected to meet the requirement toclear their short-termborrowing forthree consecutive months next year?

3. What is thecost of short-term borrowingexpected to be next year?

4. Is the company expected to benet cash flow positivenext year?

5. Do you have anysuggestionsfor how the company couldimproveits management ofshort-term borrowingnext year?

------------------

Arrow Games Company's actual sales for April and May were:

April $320,000

May $300,000

And projected sales for the coming year are:

June $275,000 January$271,000

July $275,000 February $271,000

August $290,000March$303,000

September $330,000 April $340,000

October $470,000 May $330,000

November $500,000June$302,000

December $480,000 July $302,000

The company's collection pattern is that (after allowing for 2% uncollectible accounts), 5% of its sales are cash, 20% are collected in the month after the sale and the remainder are collected in 60 days.

The company buys input materials according to 47% of expected sales two months ahead.It pays for its purchases 45% in the month after purchase and the remainder two months after purchase.

Labor expense equals 20% of the coming month's sales paid in the month accrued.Overhead expense equals $12,000 per month.Interest payments of $21,000 are due quarterly (March, June, September, December).A cash dividend of $50,000 is scheduled to be paid in June and December.Quarterly tax payments of $25,000 (March, June, September, December).

The company will be taking delivery of a new piece of equipment in July. They are required to make 3 monthly cash payments of $225,000.

Arrow has a borrowing arrangement with First National Bank which is up for renewal this month.The terms of the arrangement state that short-term borrowing will be at prime plus 3%.The company's current borrowing limit is $600,000.The bank requires a minimum cash balance of $12,000 and the company must clean up its borrowing for at least three consecutive months of the year.Any short-term borrowing will be at an annual rate of 8%.

Any excess cash can be invested at 3% per annum.