The Following Budget Estimates Have Been Prepared by Clifton Company

question 74

Essay

The following budget estimates have been prepared by Clifton Company: $\begin{array}{lcc} & \text { Cash Receipts } & \text { Cash Payments } \\\text { May } & £ 120,000 & £ 150,000 \\\text { June } & 110,300 & 150,000\end{array}$ The company likes to maintain a minimum cash balance of £40,000.
Any excess cash is invested in a money market account earning 9 per cent compounded monthly. Interest is reinvested in the money market account. Any cash deficiencies are covered by a withdrawal from the money market account. If additional cash is needed, the company has a line of credit at 12 per cent interest with the local bank. Interest is paid monthly.
Assume a cash balance on May 1 of £40,000, a money market account balance of £0, and a credit line loan balance of £0.