Delbert, Inc. has prepared its third quarter budget and provided the following data: $$\begin{array} { | l | r | r | r | }
\hline & { \text { Jul } } & { \text { Aug } } & { \text { Sep } } \
\hline \text { Cash collections } & \$ 50,000 & \$ 39,700 & \$ 47,300 \
\hline \text { Cash payments: } & & & \
\hline \text { Purchases of direct materials } & 30,000 & 21,500 & 17,800 \
\hline \text { Operating expenses } & 12,400 & 8800 & 11,500 \
\hline \text { Capital expenditures } & 13,400 & 24,500 & 0 \
\hline
\end{array}$$ The cash balance on June 30 is projected to be $4600. 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 4%. 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

Delbert, Inc. has prepared its third quarter budget and provided the following data: $$\begin{array} { | l | r | r | r | } 
\hline & { \text { Jul } } &  { \text { Aug } } & { \text { Sep } } \
\hline \text { Cash collections } & \$ 50,000 & \$ 39,700 & \$ 47,300 \
\hline \text { Cash payments: } & & & \
\hline \text { Purchases of direct materials } & 30,000 & 21,500 & 17,800 \
\hline \text { Operating expenses } & 12,400 & 8800 & 11,500 \
\hline \text { Capital expenditures } & 13,400 & 24,500 & 0 \
\hline
\end{array}$$ The cash balance on June 30 is projected to be $4600. 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 4%. 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: $4,600 (beginning balance) + $50,000 (cash collections) - $30,000 (purchases) - $12,400 (operating expenses) - $13,400 (capital expenditures) = -$1,200. To maintain the minimum cash balance of $5,000, the company needs $6,200. Therefore, it needs to borrow $10,000 to cover the shortfall and maintain the minimum balance.

Delbert, Inc The Cash Balance on June 30 Is Projected to Be