The Following Budget Estimates Have Been Prepared by Flowers Company

question 20

Essay

The following budget estimates have been prepared by Flowers Company: $$\begin{array} { l c c } & \text { Cash Receipts } & \text { Cash Payments } \\\text { January } & £ 220,000 & £ 220,000 \\\text { February } & 380,000 & 400,000 \\\text { March } & 320,000 & 319,800\end{array}$$ The company likes to maintain a minimum cash balance of £50,000.
Any excess cash is invested in a money market account earning 8 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.
Assume a cash balance on January 1 of £50,000, a money market account balance of £0, and a credit line loan balance of £0.