Problem:
The treasurer of Pepperton, Inc., a wholesale distributor of household appliances, wants to estimate his company’s cash balances for the first three months of 2006. Using the information below, construct a monthly cash budget for Pepperton for January through March 2006. Does it appear from your results that the treasurer should be concerned about investing excess cash or looking for a bank loan? (you may ignore the effect of added borrowing on interest expense)
Pepperton Selected Information
Sales (20 Percent for cash, the rest on 30-day credit terms):
2005 Actual
October $360,000
November 420,000
December 1,200,000
2006 Projected
January $600,000
February 240,000
March 240,000
Purchases (all on 60-day terms):
2005 Actual
October $510,000
November 540,000
December 1,200,000
2006 Projected
January $300,000
February 120,000
March 120,000
Wages payable monthly $180,000
Principal payment on debt due in March 210,000
Interest due in March 90,000
Dividend payable in March 300,000
Taxes payable in February 180,000
Addition to accumulated depreciation in March 30,000
Cash balance on January 1, 2006 $300,000
Minimum desired cash balance 150,000