Sparks Corporation has a cash balance of $10,500 on April 1. The company must maintain a minimum cash balance of $8,500. During April, expected cash receipts are $53,000. Cash disbursements during the month are expected to total $59,500. Ignoring interest payments, during April the company will need to borrow

a. $8.500

b. $4.500

c. $6.500

d. $4.000

b. $4.500

Explanation:

The movement in cash balance at the start and end of a period is as a result of cash receipts and disbursements. This may be expressed mathematically as

Opening cash balance + cash receipts - cash disbursed = closing cash balance

Hence,

$10,500 + $53,000 - $59,500 = Closing cash balance

closing cash balance

= $4,000

If the minimum cash balance of $8,500 is expected, then the amount to be borrowed

= $8500 - $4000

= $4500