A3+ has prepared its 3rd quarter budget and provided the following data: $\begin{array}{|l|r|r|r|}
\hline& {\text { Jul }} &{\text { Aug }} &{\text { Sep }} \
\hline \text { Cash collections } & \$ 50,000 & \$ 40,000 & \$ 48,000 \
\hline \text { Cash payments: } & & & \
\hline \text { Purchases of inventory } & 31,000 & 22,000 & 18,000 \
\hline \text { Operating expenses } & 12,000 & 9,000 & 11,600 \
\hline \text { Capital expenditures } & 13,000 & 25,000 & 0\\hline
\end{array}$ The cash balance on June 30 is projected to be $4,000. The company has to maintain a minimum cash balance of $5,000 and is authorized to borrow at the end of each month to make up any shortfalls. It may borrow in increments of $5,000 and has to pay interest every month at an annual rate of 5%. All financing transactions are assumed to take place at the end of the month. The loan balance should be repaid in increments of $5,000 whenever there is surplus cash.
-
How much will the company have to borrow at the end of July?

Question

A3+ has prepared its 3rd quarter budget and provided the following data: $\begin{array}{|l|r|r|r|} 
\hline& {\text { Jul }} &{\text { Aug }} &{\text { Sep }} \
\hline \text { Cash collections } & \$ 50,000 & \$ 40,000 & \$ 48,000 \
\hline \text { Cash payments: } & & & \
\hline \text { Purchases of inventory } & 31,000 & 22,000 & 18,000 \
\hline \text { Operating expenses } & 12,000 & 9,000 & 11,600 \
\hline \text { Capital expenditures } & 13,000 & 25,000 & 0\\hline
\end{array}$ The cash balance on June 30 is projected to be $4,000. The company has to maintain a minimum cash balance of $5,000 and is authorized to borrow at the end of each month to make up any shortfalls. It may borrow in increments of $5,000 and has to pay interest every month at an annual rate of 5%. All financing transactions are assumed to take place at the end of the month. The loan balance should be repaid in increments of $5,000 whenever there is surplus cash.
-
How much will the company have to borrow at the end of July?

Quizplus · Accepted Answer

At the end of July, the cash balance is $4,000 (beginning balance) + $50,000 (collections) - $31,000 (inventory) - $12,000 (expenses) - $13,000 (capital expenditures) = -$2,000. To maintain the minimum balance of $5,000, the company needs $7,000. Therefore, it needs to borrow $10,000 (in increments of $5,000).

A3+ Has Prepared Its 3rd Quarter Budget and Provided the Following