Acme Inc.has prepared its third quarter budget and provided the following data: 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.
-Calculate the final projected cash balance at the end of September.

Question

Acme Inc.has prepared its third quarter budget and provided the following data:  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.
-Calculate the final projected cash balance at the end of September.

Quizplus · Accepted Answer

To solve this question, we need to prepare a cash budget for each month from July to September. Here is a summary of the cash budgets:

July: 
Beginning cash balance = $4,000 
Cash inflow = $18,000 
Total cash available = $22,000 
Cash outflow = $23,000 
Ending cash balance = $4,000 (minimum balance, no borrowing)

August: 
Beginning cash balance = $4,000 
Cash inflow = $20,000 
Total cash available = $24,000 
Cash outflow = $15,000 + $5,000 (borrowing) + $36 (interest) = $20,036 
Ending cash balance = $4,964

September: 
Beginning cash balance = $4,964 
Cash inflow = $19,500 
Total cash available = $24,464 
Cash outflow = $17,000 + $36 (interest) = $17,036 
Ending cash balance = $7,428

Therefore, the projected cash balance at the end of September is $7,428, which is answer choice B.

Acme IncHas Prepared Its Third Quarter Budget and Provided the Following