Reference no: EM132662071

Rancho, Inc. forecasts the following sales for the second quarter of 2020, as well as actual March sales:

                        March (actual)        April               May                     June

Total $3,000         $4,000          $5,000         $6,000             $15,000

In addition:

1. The company makes 60% cash sales and 40% credit sales.
2. It collects all credit sales in the month after the sale.
3. The firm budgets $4,400 for monthly operating expenses. That amount includes $400 for depreciation.
4. The firm pays all of its cash-based expenses in the month incurred.
5. Rancho, Inc. had $100 of cash at March 31, 2020, and it must maintain a minimum $500 cash balance at the end of every month to ensure liquidity.
6. The company has a line of credit with its bank that allows borrowing in $100 increments at 12% interest. All borrowing takes place at the beginning of the month in which the company requires cash.
7. The company must repay principal in hundred dollar increments. 
8. The credit facility requires Rancho, Inc. to repay all accrued interest to date whenever it repays principal.
9. Principal repayments and interest payments occur at the end of a month (funds permitting).

Required:

Problem 1: Develop monthly and quarterly short-term financing budgets for the second quarter of 2020 using the templates provided in the Excel spreadsheet titled Cash Flow Worksheet and Short-Term Financing Budget.