Bantam Industries has budgeted the following information for March: $\begin{array}{llr}
\text { Cash receipts } &\$271,000\
\text {Beginning cash balance } &5,000\
\text { Cash payments } &280,000\
\text { Desired ending cash balance } &25,000
\end{array}$
If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments, and interest is paid monthly at 1% on the first day of the following month. The company had no debt before March 1. How much cash will the company need to borrow in March?

Question

Bantam Industries has budgeted the following information for March: $\begin{array}{llr}
  \text { Cash receipts } &\$271,000\
 \text {Beginning cash balance  } &5,000\
 \text { Cash payments } &280,000\
 \text { Desired ending cash balance } &25,000
\end{array}$
 If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments, and interest is paid monthly at 1% on the first day of the following month. The company had no debt before March 1. How much cash will the company need to borrow in March?

Quizplus · Accepted Answer

Bantam Industries will have a cash shortage of $29,000 in March. This is calculated by adding up the total cash disbursements for March ($176,000) and subtracting the total cash receipts for March ($145,000), which equals a cash shortfall of $31,000. Since the company can borrow money in increments of $1,000, they will need to borrow $29,000 ($1,000 x 29). Additionally, since the company will be borrowing money, they will need to pay interest on the borrowed amount which will be $290 ($29,000 x 0.01).

Bantam Industries Has Budgeted the Following Information for March If There Is a Cash Shortage, the Company Borrows Money