Question

QUESTION 24

A firm is analysing its cash budget for June. Assuming its total cash receipts is $1230 and cash expenses is $745. If the company has a minimum. desired cash balance of $1000 and ended the month of May with $300, how much loans must the firm take to meet its requirements for June.
O a. $1000
O b. $215
O c. $515
O d. No loans are needed

Answer 1

The firm has the following cash inflows and outflows for June:

Cash receipts: $1230

Cash expenses: $745

Desired ending cash balance: $1000

Beginning cash balance: $300

To determine the amount of loans the firm must take to meet its requirements for June, we need to calculate the [cash shortfall](poe://www.poe.com/_api/key_phrase?phrase=cash%20shortfall&prompt=Tell%20me%20more%20about%20cash%20shortfall.), which is the amount by which the [desired ending cash balance](poe://www.poe.com/_api/key_phrase?phrase=desired%20ending%20cash%20balance&prompt=Tell%20me%20more%20about%20desired%20ending%20cash%20balance.) exceeds the sum of [cash receipts](poe://www.poe.com/_api/key_phrase?phrase=cash%20receipts&prompt=Tell%20me%20more%20about%20cash%20receipts.) and cash expenses:

Cash shortfall = [Desired ending cash](poe://www.poe.com/_api/key_phrase?phrase=Desired%20ending%20cash&prompt=Tell%20me%20more%20about%20Desired%20ending%20cash.) balance - (Cash receipts - Cash expenses)

Cash shortfall = $1000 - ($1230 - $745)

Cash shortfall = $1000 - $485

Cash shortfall = $515

Since the cash shortfall is $515, the firm must take out loans in the amount of $515 to meet its requirements for June. Therefore, the correct answer is option (C) $515.