Question
The George Company has a policy of maintaining an end-of-month cash balance of at least $40,000. In months where a shortfall is expected, the company
The George Company has a policy of maintaining an end-of-month cash balance of at least $40,000. In months where a shortfall is expected, the company can draw in $1,000 increments on a line of credit it has with a local bank, at an interest rate of 12% per annum. All borrowings are assumed for budgeting purposes to occur at the beginning of the month, while all loan repayments (in $1,000 increments of principal) are assumed to occur at the end of the month. Interest is paid at the end of each month. For April, an end-of-month cash balance (prior to any financing and interest expense) of $27,200 is budgeted; for May, an excess of cash collected over cash payments (prior to any interest payments and loan repayments) of $31,200 is anticipated. |
a. | What is the interest payment estimated for April (there is no bank loan outstanding at the end of March)? (Do not round intermediate calculations.) |
b. | What is the total financing effect (cash interest plus loan transaction) for May? (Do not round intermediate calculations.) |
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