A firm's peak borrowing needs will probably be overstated if it bases its monthly cash budget on the assumption that both cash receipts and cash payments occur uniformly over the month but in reality receipts are concentrated at the beginning of each month.

Question

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If cash receipts are concentrated at the beginning of the month, the firm may have more cash at the beginning of the month than it anticipated in its monthly cash budget, leading to an overstatement of peak borrowing needs.

A Firm's Peak Borrowing Needs Will Probably Be Overstated If