Acme, Inc. has prepared its third quarter budget and provided the following data

Question

Acme, Inc. has prepared its third quarter budget and provided the following data:

The cash balance on June 30 is projected to be $4,100. 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. How much will the company have to borrow at the end of July?

Jul Aug Sep Cash collections $50,000 $39,600 $46,100 Cash payments: Purchases of direct materials 30,000 21,700 17,600 Operating expenses 12,300 8,000 11,600 Capital expenditures 13,700 24,300 0

Explanation / Answer

July    $ Opening Cash balance 4100 Cash Collection 50000 Purchase of direct material -30000 Operating Expenses -12300 Capital Expenditure -13700 Interest on Borrowings @5% p.a. -20.8 Borrowings 5000 Cash balance 3079.2 Borrowings at end $5000 multiple 5000 Answer Closing Cash balance 8079.2 Note: The minimum balance should be $5000 but the opening is $4100 so there will be borrowings in the multiple of $5000

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