Kayak Co Budgeted Cash Receipts Excluding Cash

kayak Co Budgeted The Following Cash Receipts Excluding Cash Recei

Prepare monthly cash budgets for each of the first three months of next year, considering budgeted cash receipts, disbursements, bank borrowing limits, interest payments, and repaid principal based on the provided data.

Paper For Above instruction

Introduction

Cash budgeting is a vital financial planning tool that helps companies anticipate and manage their cash flows to ensure adequate liquidity for operational needs and contractual obligations. The case of Kayak Co. exemplifies this process, particularly under the constraints of a credit agreement with a bank that requires maintaining a minimum cash balance and allows borrowing up to a specified limit. This paper develops detailed monthly cash budgets for the first quarter, highlighting anticipated receipts, disbursements, borrowings, and repayments, emphasizing the importance of cash flow management in maintaining financial stability.

Cash Receipts and Disbursements Analysis

Kayak Co. has provided budgeted cash receipts for January, February, and March, excluding cash from loans, along with cash disbursements. The receipts amount to $518,000 in January, $412,000 in February, and $462,000 in March. Disbursements are similarly detailed, with amounts specified for each month. The company’s policy mandates a minimum cash balance of $30,000 at month-end, which influences borrowing and repayment decisions.

Application of Bank Borrowing Constraints and Interest Calculation

The bank agreement allows Kayak to borrow up to $150,000 at an annual interest rate of 12%, payable monthly based on the beginning balance of the loan. Interest for each month is calculated as (Loan balance at the start of the month) × (1% of the annual rate / 12), i.e., 1% per month. Repeatedly, the company repays the loan principal with available cash at month-end, adjusting for the minimum cash balance requirement.

January Budget

Starting with an initial cash balance of $30,000 and a loan balance of $60,000, Kayak’s January budgets include anticipated receipts of $518,000, and disbursements of $485,000. To cover the net cash flow, the company may need to borrow, considering the minimum cash requirement. The planned borrowing will be used to meet the shortfall, and interest will accrue based on the beginning loan balance. Principal repayment will be made from the cash available after disbursements, receipts, interest, and maintaining the minimum cash balance.

February and March Budgets

Similarly, for February and March, cash receipts and disbursements are projected, and the borrowing and repayment strategy is applied accordingly. Each month’s budget considers the prior month’s ending balances, borrowings, interest payments, and cash conservation strategies. This process ensures that Kayak maintains sufficient liquidity and adheres to bank covenants throughout the quarter.

Implication for Financial Planning

Accurate cash budgeting under these constraints facilitates proactive management of liquidity risk, ensuring operational stability. It also highlights the importance of forecasting sales and receivables, managing disbursements, and controlling borrowings. The use of cash budgets allows Kayak Co. to synchronize cash inflows with outflows, optimize borrowing costs, and avoid potential liquidity crises, ultimately contributing to sustainable financial performance.

Conclusion

The cash budget development for Kayak Co. exemplifies the integration of operational forecasts, contractual obligations, and banking covenants into a coherent financial planning framework. Proper cash flow management, reinforced by detailed budgeting, helps the company navigate its financing constraints, minimize interest expenses, and maintain a healthy cash position, which is essential for ongoing success and growth.

References

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