The Carmel Corporation's projected sales for the firsteight months of 2004 are as follows:
January $100,000
February 110,000
March 130,000
April 250,000
May $275,000
June 250,000
July 235,000
August 160,000
Of Carmel's sales, 20 percent is for cash, another 60percent is collected in the month following sale, and 20 percent iscollected in the second month following sale. November and Decembersales for 2003 were $220,000 and $175,000, respectively.
Carmel purchases its raw materials two months in advance of itssales equal to 70 percent of their final sales price. The supplieris paid one month after it makes delivery. For example, purchasesfor April sales are made in February and payment is made inMarch.
In addition, Carmel pays $10,000 per month for rent and $20,000each month for other expenditures. Tax prepayments for $23,000 aremade each quarter beginning in March.
The company's cash balance at December 31, 2003, was$22,000; a minimum balance of $20,000 must be maintained at alltimes. Assume that any short-term financing needed to maintain cashbalance would be paid off in the month following the month offinancing if sufficient funds are available. Interest on short-termloans (12 percent) is paid monthly. Borrowing to meet estimatedmonthly cash needs takes place at the beginning of the month. Thus,if in the month of April the firm expects to have a need foran additional $60,500, these funds would be borrowed at thebeginning of April with interest of $605 (.12 × 1/12 ×$60,500) owed for April and paid at the beginning of May.
a) Prepare a cash budget for Carmel covering the first sevenmonths of 2004.
b)Carmel has $250,000 in notes payable due in July that must berepaid or renegotiated for an extension. Will the firm have amplecash to repay the notes?