Asked by Kaleb Shukeat on Jun 01, 2024

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During September the capital expenditure budget indicates a $420000 purchase of equipment. The ending September cash balance from operations is budgeted to be $60000. The company wants to maintain a minimum cash balance of $30000. What is the minimum cash loan that must be planned to be borrowed from the bank during September?

A) $330000
B) $360000
C) $450000
D) $390000

Capital Expenditure Budget

The capital expenditure budget outlines planned investments in long-term assets, including equipment, property, and other significant infrastructure projects.

Minimum Cash Balance

The smallest amount of cash that a company decides to hold in its accounts to ensure liquidity and smooth operations.

Cash Loan

A loan given to a borrower in cash, which must be repaid over a specified period along with interest.

  • Distinguish between capital and operational expenditures in budgeting.
  • Understand the concept of maintaining a minimum cash balance and its impact on financing decisions.
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JD
johannes drijversJun 06, 2024
Final Answer :
D
Explanation :
The company wants to maintain a minimum cash balance of $30000.
The ending cash balance from operations is budgeted to be $60000.
Therefore, the minimum cash that must be planned to be borrowed from the bank during September is:
Minimum cash balance required = $30000
Minus: Ending September cash balance from operations = $60000
Minus: Capital expenditure budget = $420000
= -$420000 + $60000 + $30000
= -$330000
The company must plan to borrow a minimum of $330000 from the bank in September.
Therefore, the correct answer is D.