Question

Johnson's Tree Farm has a cash balance of $33 and a short-term loan balance of $200 at the beginning of quarter 1. The net cash inflow for the first quarter is $89 and for the second quarter there is a net cash outflow of $44. All cash shortfalls are funded with short-term debt. The firm pays 2 percent of its prior quarter's ending loan balance as interest each quarter. The minimum cash balance is $25. What is the short-term loan balance at the end of the first quarter

Answer 1

Short term balance at end of quarter = $107

Step-by-step explanation:

given data

cash balance = $33

short-term loan balance = $200

net cash inflow = $89

net cash outflow = $44

pays = 2 percent

minimum cash balance = $25

to find out

short-term loan balance at the end of the first quarter

solution

first we get here total cash position at end of first quarter that is

total cash position = $ 33 + $89

total cash position = 122

and

interest paid on loan is 2% that is

interest paid on loan = 2% of 200

interest paid on loan = $4

so here Short term balance at end of quarter will be

Short term balance at end of quarter = previous short term balance + interest paid - cash position at end of quarter + minimum cash required .............1

Short term balance at end of quarter = $200 + $4 - $122 + $25

Short term balance at end of quarter = $107