Bantam Industries has budgeted the following information for March: $\begin{array}{|l|r|} \hline \text { Cash receipts }& \$ \quad 271,000\ \hline \text { Beginning cash balance } & 5,000 \ \hline \text { Cash payments } & 280,000 \ \hline \text { Desire dending cash balance } & 25,000\ \hline \end{array}$ 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^st.How much cash will the company need to borrowed in March? A) $25,000 B) $29,000 C) The company should not need to borrow any cash in March D) $4,000

Question

Quizplus · Accepted Answer

The company's total cash inflow in March is $271,000 + $5,000 = $276,000. The total cash outflow is $280,000. Therefore, the company has a cash shortage of $280,000 - $276,000 = $4,000.

Since the desired ending cash balance is $25,000 and the beginning cash balance is $5,000, the company needs to borrow enough money to cover the shortage plus the difference between the desired and beginning cash balances, which is $25,000 - $5,000 = $20,000.

The company can only borrow cash in $1,000 increments, so it needs to borrow $20,000 rounded up to the nearest $1,000, which is $29,000.

Therefore, the company needs to borrow $29,000 in March. The answer is B.

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