AAA Company Is Preparing Its 3rd Quarter Budget and Provides

AAA Company is preparing its 3rd quarter budget and provides the following data:
$\begin{array}{|l|r|r|r|} \hline& \text { Jul } & \text { Aug } & \text { Sep } \\\hline \text { Cash collections } & \$ 50,000 & \$ 40,000 & \$ 48,000 \\\hline \text { Cash payments: } & & & \\\hline \text { Purchases of inventory } & 31,000 & 22,000 & 18,000 \\\hline \text { Operating expenses } & 12,000 & 9,000 & 11,600 \\\hline \text { Capital expenditures } & 13,000 & 25,000 & 0\\\hline\end{array}$
Cash balance at June 30 is projected to be $4,000. The company is required 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 pays interest monthly at an annual rate of 5%. All financing transactions are assumed to take place at the end of the month. Loan balance should be repaid in increments of $5,000 when there is surplus cash.
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What is the projected cash shortfall at the end of August, before financing transactions have been taken into consideration?

A) $0
B) $5,000
C) $3.000
D) $8,000

Correct Answer:

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