q.16

Fact Pattern: The Raymar Company is preparing its cash budget for the months of April and May. The firm has established a $200,000 line of credit with its bank at a 12% annual rate of interest on which borrowings for cash deficits must be made in $10,000 increments. There is no outstanding balance on the line of credit loan on April 1. Principal repayments are to be made in any month in which there is a surplus of cash. Interest is to be paid monthly. If there are no outstanding balances on the loans, Raymar will invest any cash in excess of its desired end-of-month cash balance in U.S. Treasury bills. Raymar intends to maintain a minimum balance of $100,000 at the end of each month by either borrowing for deficits below the minimum balance or investing any excess cash. Expected monthly collection and disbursement patterns are shown below. - Collections: 50% of the current month's sales budget and 50% of the previous month's sales budget. - Accounts Payable Disbursements: 75% of the current month's accounts payable budget and 25% of the previous month's accounts payable budget. - All other disbursements occur in the month in which they are budgeted. In May, Raymar will be required to A. Borrow an additional $20,000 and pay $1,000 interest. B. Repay $20,000 principal and pay $1,000 interest. C. Repay $90,000 principal and pay $100 interest. D. Pay $900 interest