The abc Company has budgeted sales revenues as follows:Other budgeted cash receipts: (a) sale of plant assets for $49,400 in November, and (b) sale of new common stock for $67,400 in December. Other budgeted cash disbursements: (a) operating expenses of $27,000 each month, (b) selling and administrative expenses of $50,000 each month, (c) dividends of $76,000 will be paid in November, and (d) purchase of equipment for $24,000 cash in December.
The company has a cash balance of $40,000 at the beginning of December and wishes to maintain a minimum cash balance of $40,000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 12%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available. Also assume that $14,000 of financing was obtained on November 1.