Delbert,Inc.has prepared its third quarter budget and provided the following data: $$\begin{array} { | l | r | r | r | }
\hline & { \text { Jul } } &{ \text { Aug } } & { \text { Sep } } \
\hline \text { Cash collections } & \$ 50,000 & \$ 39,600 & \$ 46,100 \
\hline \text { Cash payments: } & & & \
\hline \text { Purchases of direct materials } & 30,000 & 21,700 & 17,600 \
\hline \text { Operating expenses } & 12,300 & 8000 & 11,600 \
\hline \text { Capital expenditures } & 13,700 & 24,300 & 0 \
\hline
\end{array}$$ The cash balance on June 30 is projected to be $4100.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

Delbert,Inc.has prepared its third quarter budget and provided the following data: $$\begin{array} { | l | r | r | r | } 
\hline & { \text { Jul } } &{ \text { Aug } } & { \text { Sep } } \
\hline \text { Cash collections } & \$ 50,000 & \$ 39,600 & \$ 46,100 \
\hline \text { Cash payments: } & & & \
\hline \text { Purchases of direct materials } & 30,000 & 21,700 & 17,600 \
\hline \text { Operating expenses } & 12,300 & 8000 & 11,600 \
\hline \text { Capital expenditures } & 13,700 & 24,300 & 0 \
\hline
\end{array}$$ The cash balance on June 30 is projected to be $4100.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

The cash balance at the end of June is $4,100. In July, cash collections are $50,000, and cash payments total $56,000 ($30,000 + $12,300 + $13,700). The ending cash balance before borrowing is $4,100 + $50,000 - $56,000 = -$1,900. To maintain the minimum cash balance of $5,000, the company needs $6,900. Therefore, it must borrow $10,000 (next increment of $5,000) to cover the shortfall and maintain the required balance.

Delbert,Inc The Cash Balance on June 30 Is Projected to Be