The preparation of a cash budget serves which of the following purposes?
A) To estimate the amount and timing of cash flows that are needed in order to optimize the price of the firm's common stock
B) To calculate the amount of future cash flows that would be needed in order to achieve the optimal level of financing during the forecast period
C) To determine the amount and timing of short-term financing that would be required for the operation of a business during the forecast period
D) To estimate the amount of sales volume that would be required in order to achieve the break-even point

Question

Quizplus · Accepted Answer

The preparation of a cash budget serves the purpose of determining the amount and timing of short-term financing that would be required for the operation of a business during the forecast period. This type of budget helps a business to plan for and manage its cash flow, ensuring that there are enough funds available to cover expenses and meet financial obligations as they fall due. Option A is incorrect because the preparation of a cash budget is not directly related to optimizing a firm's stock price. Option B is incorrect because forecasting the optimal level of financing would involve the use of a capital budget, not a cash budget. Option D is incorrect because the break-even analysis is a tool used to determine the sales volume required to cover costs, not the amount of future cash flows needed.

The Preparation of a Cash Budget Serves Which of the Following