Final answer:
The company must borrow $3,500 to meet the minimum cash balance requirement after considering the opening balance, expected receipts, and disbursements for the third quarter.
Step-by-step explanation:
The question asks how much Sara's company must borrow to maintain a minimum quarterly cash balance based on their cash budget. After analyzing the cash budget for the third quarter which includes an opening cash balance of $7,000, expected cash receipts totaling $22,000, and expected cash disbursements of $24,500, we can determine the closing cash balance. To satisfy a minimum quarterly cash balance of $8,000, Sara must calculate the ending cash position after accounting for receipts and disbursements and then compare it to this minimum requirement.
The closing cash balance without borrowing would be calculated as follows:
- Opening Cash Balance: $7,000
- Plus Expected Cash Receipts: $22,000
- Less Expected Cash Disbursements: $24,500
- Closing Cash Balance (without borrowing): $4,500 (deficit)
To meet the required minimum cash balance of $8,000, the company must address this deficit. Therefore, the required borrowing amount would be the difference between the minimum cash balance requirement and the closing cash balance without borrowing:
$8,000 - $4,500 = $3,500
Sara must arrange for the company to borrow this amount. Hence, the answer to the question is c. $3,500.