A3+ has prepared its 3rd quarter budget and provided the following data: $$\begin{array} { | l | r | r | r | }
\hline & { \text { Jul } } & { \text { Aug } } & { \text { Sep } } \
\hline \text { Cash collections } & \$ 50,000 & \$ 40,000 & \$ 48,000 \
\hline \text { Cash payments: } & & & \
\hline \text { Purchases of inventory } & 31,000 & 22,000 & 18,000 \
\hline \text { Operating expenses } & 12,000 & 9,000 & 11,600 \
\hline \text { Capital expenditures } & 13,000 & 25,000 & 0 \
\hline
\end{array}$$
-Refer to the table above,The cash balance on June 30 is projected to be $4,000. 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

A3+ has prepared its 3rd quarter budget and provided the following data: $$\begin{array} { | l | r | r | r | } 
\hline &  { \text { Jul } } &  { \text { Aug } } & { \text { Sep } } \
\hline \text { Cash collections } & \$ 50,000 & \$ 40,000 & \$ 48,000 \
\hline \text { Cash payments: } & & & \
\hline \text { Purchases of inventory } & 31,000 & 22,000 & 18,000 \
\hline \text { Operating expenses } & 12,000 & 9,000 & 11,600 \
\hline \text { Capital expenditures } & 13,000 & 25,000 & 0 \
\hline
\end{array}$$ 
-Refer to the table above,The cash balance on June 30 is projected to be $4,000. 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

At the end of July, the cash balance is calculated as: $4,000 (beginning balance) + $50,000 (collections) - $31,000 (inventory) - $12,000 (expenses) - $13,000 (capital expenditures) = -$2,000. To maintain the minimum balance of $5,000, the company needs $7,000 more, so it must borrow $10,000 (in increments of $5,000).

A3+ Has Prepared Its 3rd Quarter Budget and Provided the Following