The Following Budget Estimates Have Been Prepared by Clifton Company

question 26

Essay

The following budget estimates have been prepared by Clifton Company:
The company likes to maintain a minimum cash balance of £40,000.
Any excess cash is invested in a money market account earning 9 percent 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 percent 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.
Required:
Prepare a cash budget for May and June.

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Definitions:

Foreign Currency

Money or currency used in another country, differing from one's own domestic currency.

Exchange Rate

The rate at which one currency can be exchanged for another currency.

Commercial Banks

Financial institutions that accept deposits, offer checking and savings accounts, and provide loans, thereby playing a crucial role in the financial system.

Central Bank

Is the primary financial institution of a country, responsible for issuing currency, managing the money supply, regulating banks, and implementing monetary policy to achieve economic stability.