The Following Budget Estimates Have Been Prepared by Flowers Company

question 117

Essay

The following budget estimates have been prepared by Flowers Company:
The company likes to maintain a minimum cash balance of £50,000.
Any excess cash is invested in a money market account earning 8 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.
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.
Required:
Prepare a cash budget for each of the first three months of the year.

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Definitions:

NAFTA

stands for the North American Free Trade Agreement, a treaty among the United States, Canada, and Mexico that eliminated most tariffs and barriers to trade and investment.

European Union

A political and economic union of 27 European countries that are located primarily in Europe, aiming to ensure the free movement of people, goods, services, and capital.

GDP

Short for Gross Domestic Product, it measures the total economic output of a country within a specific time frame.

IMF

The International Monetary Fund, a global organization that provides financial support and advice to countries facing economic difficulties.