Thomas Taylor has been working on Vaughn Paints' cash budget for the coming year. Based on his projections for March, the beginning cash balance will be $44,700; cash collections will be $570,000; and cash disbursements will be $604,000. Vaughn Paints desires to maintain a $38,000 minimum cash balance. The company has a 6% open line of credit with its bank, which provides short-term borrowings in $500 increments. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in $500 increments). Accrued interest is paid at the time of repayment.
(a) How much will Vaughn Paints need to borrow from the bank at the beginning of March?
Vaughn Paints should borrow \$ 27,500
(b) Assuming that Vaughn Paints has $20,000 in excess cash budgeted for April, how much principal will the company plan to repay? How much interest will be repaid in April?
Principal to be repaid \$ 20,000
Interest to be repaid \$ 100
