Tomo,Inc.has prepared its third quarter budget and provided the following data: $$\begin{array} { | l | r | r | r | }
\hline &{ \text { Jul } } & { \text { Aug } } & { \text { Sep } } \
\hline \text { Cash collections } & \$ 50,000 & \$ 39,900 & \$ 46,000 \
\hline \text { Cash payments: } & & & \
\hline \text { Purchases of direct materials } & 31,000 & 22,000 & 17,500 \
\hline \text { Operating expenses } & 12,200 & 8700 & 11,300 \
\hline \text { Capital expenditures } & 13,600 & 24,300 & 0 \
\hline
\end{array}$$ The cash balance on June 30 is projected to be $4500.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 August taking into consideration all the financing transactions.
A) $7558
B) $(7442)
C) $47,600
D) $15,000

Question

Tomo,Inc.has prepared its third quarter budget and provided the following data: $$\begin{array} { | l | r | r | r | } 
\hline &{ \text { Jul } } & { \text { Aug } } & { \text { Sep } } \
\hline \text { Cash collections } & \$ 50,000 & \$ 39,900 & \$ 46,000 \
\hline \text { Cash payments: } & & & \
\hline \text { Purchases of direct materials } & 31,000 & 22,000 & 17,500 \
\hline \text { Operating expenses } & 12,200 & 8700 & 11,300 \
\hline \text { Capital expenditures } & 13,600 & 24,300 & 0 \
\hline
\end{array}$$ The cash balance on June 30 is projected to be $4500.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 August taking into consideration all the financing transactions.
A) $7558
B) $(7442)
C) $47,600
D) $15,000

Quizplus · Accepted Answer

The cash balance at the end of July is $4500 + $50,000 - $31,000 - $12,200 - $13,600 = -$2,300. To maintain the minimum balance of $5,000, the company borrows $10,000. The balance at the end of July is $7,700. In August, cash collections are $39,900, and payments are $22,000 + $8,700 + $24,300 = $55,000. The cash balance before financing is $7,700 + $39,900 - $55,000 = -$7,400. The company borrows $15,000 to cover the shortfall and maintain the $5,000 minimum balance. The interest on the $10,000 July loan is $41.67 ($10,000 * 5% / 12). The final cash balance at the end of August is $7,600 - $41.67 = $7,558.33, rounded to $7,558.

Tomo,IncHas Prepared Its Third Quarter Budget and Provided the Following