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# Cash Budget and Loan Repayment

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Harrison Printing has projected its sales for the first eight months of 2004 as follows:

January 100,000
February 120,000
March 150,000
April 300,000
May 275,000
June 200,000
July 200,000
August 180,000

Harrison collects 50 percent of its sales in the month of the sale, 50 percent in the month following the sale. During November and December of 2003 Harrison's sales were \$220,000 and \$175,000, respectively.

Harrison purchases raw materials (delivery is made) two months in advance of its sales equal to 65 percent of its
final sales. The supplier is paid one month after delivery. In addition, Harrison pays \$15,000 per month for rent and \$25,000 each month for other expenditures. Tax prepayments of \$22,500 are made each quarter beginning in March. The company's
cash balance as of December 31, 2003, was \$22,000; a minimum balance of \$20,000 must be maintained at all times to satisfy the firm's bank line of credit agreement. Harrison has arranged with its bank for short-term credit at an interest rate of 12 percent per annum (1 percent per month) to be paid monthly. Borrowing to meet estimated monthly cash needs takes place at the end of the month, and interest is not paid until the end of the following month. Consequently,
if the firm were to need to borrow \$50,000 during the month of April, then it would pay \$500 (= .01 × \$50,000) in interest during May. Finally, Harrison follows a policy of repaying its outstanding short-term debt in any month in which its cash balance exceeds the minimum desired balance of \$20,000.

a. Using the information, prepare a cash budget - use an additional worksheet/tab if needed.
b. Harrison has a \$20,000 note due in June. Will the firm have sufficient cash to repay the loan?