At the beginning of the current month, Melrose had £10,000. Cash disbursements were £260,000 and cash collections were £235,000. Melrose invests all excess cash in a money market fund and has a line of credit to cover cash deficiencies. If Melrose wishes to start the next month with £15,000, Melrose must
A)borrow £15,000.
B)borrow £30,000.
C)borrow £45,000.
D)do nothing.

Question

Quizplus · Accepted Answer

Melrose started the month with £10,000 and had cash collections of £235,000, so the total available cash was £245,000. However, Melrose had cash disbursements of £260,000, meaning there was a cash deficiency of £15,000. To end the month with £15,000, Melrose would need to cover this deficiency and borrow an additional £15,000, bringing the total borrowing to £30,000. Therefore, the answer is B.

At the Beginning of the Current Month, Melrose Had £10,000