A3+ Has Prepared Its 3rd Quarter Budget and Provided the Following

question 41

Multiple Choice

A3+ has prepared its 3rd quarter budget and provided the following data: $\begin{array}{|l|r|r|r|} \hline& {\text { Jul }} &{\text { Aug }} &{\text { Sep }} \\\hline \text { Cash collections } & \$ 50,000 & \$ 40,000 & \$ 48,000 \\\hline \text { Cash payments: } & & & \\\hline \text { Purchases of inventory } & 31,000 & 22,000 & 18,000 \\\hline \text { Operating expenses } & 12,000 & 9,000 & 11,600 \\\hline \text { Capital expenditures } & 13,000 & 25,000 & 0\\\hline\end{array}$ The cash balance on June 30 is projected to be $4,000. 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.
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How much will the company have to borrow at the end of July?

• A) $0
• B) $5,000
• C) $15,000
• D) $10,000

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Definitions:

Expected Total Cash Flows

The anticipated sum of all cash inflows and outflows associated with an investment over a specific period.

Salvage Value

The estimated residual value of an asset at the end of its useful life, reflecting what it could be sold for or scrapped.

Net Present Value

This is the difference between the present value of cash inflows and the present value of cash outflows over a period of time, used to assess the profitability of an investment.

Original Investment

The initial amount of money put into a project, asset, or company, intended to generate earnings or profit.