Bantam Industries has budgeted the following information for March: $$\begin{array} { l r }
\text { Cash receipts } & \$ 271,000 \
\text { Beginning cash balance } & 5,000 \
\text { Cash payments } & 280,000 \
\text { Desired ending cash balance } & 25,000
\end{array}$$ If there is a cash shortage,the company borrows money from the bank.All cash is borrowed at the beginning of the month in $1,000 increments,and interest is paid monthly at 1% on the first day of the following month.The company had no debt before March 1.How much cash will the company need to borrow in March?
A) $25,000
B) $29,000
C) The company should not need to borrow any cash in March
D) $4,000

Question

Bantam Industries has budgeted the following information for March: $$\begin{array} { l r } 
\text { Cash receipts } & \$ 271,000 \
\text { Beginning cash balance } & 5,000 \
\text { Cash payments } & 280,000 \
\text { Desired ending cash balance } & 25,000
\end{array}$$ If there is a cash shortage,the company borrows money from the bank.All cash is borrowed at the beginning of the month in $1,000 increments,and interest is paid monthly at 1% on the first day of the following month.The company had no debt before March 1.How much cash will the company need to borrow in March?
A) $25,000
B) $29,000
C) The company should not need to borrow any cash in March
D) $4,000

Quizplus · Accepted Answer

We need to calculate the total cash inflows and outflows for March.
Total cash inflows = $74,000 + $9,000 = $83,000
Total cash outflows = $90,000
Net cash outflow = Total cash outflows - Total cash inflows = $7,000
Since there is a cash shortage, the company needs to borrow money from the bank.
The company needs to borrow $7,000, which is less than $1,000 increments. Hence, the company needs to borrow $8,000 (8*$1,000) from the bank.
The company will also have to pay interest of 1% on $8,000, which is $80, on the first day of April.
Therefore, the total amount of cash the company needs to borrow in March is $8,000, and the interest to be paid in April is $80.
Hence, the answer is B.

Bantam Industries Has Budgeted the Following Information for March If There Is a Cash Shortage,the Company Borrows Money from