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Fortner Manufacturing has a cash balance of [tex]\(\$8,000\)[/tex] on August 1 of the current year. The company's controller forecasts the following cash receipts and cash disbursements for the upcoming two months of activity:

[tex]\[
\begin{tabular}{|l|l|l|}
\hline
& Cash Receipts & Cash Payments \\
\hline
August & \(\$45,000\) & \(\$57,000\) \\
\hline
September & \(\$66,000\) & \(\$56,000\) \\
\hline
\end{tabular}
\][/tex]

Management desires to maintain a minimum cash balance of [tex]\(\$8,000\)[/tex] at all times. If necessary, additional financing can be obtained in [tex]\(\$1,000\)[/tex] multiples at a [tex]\(12\%\)[/tex] interest rate. All borrowings are made at the beginning of the month; debt retirement, on the other hand, occurs at the end of the month. Interest is paid at the time of repaying loan principal and is computed on the portion of debt repaid.

Required:

1. Determine the ending cash balance in August both before and after any necessary financing or debt retirement.
2. Repeat part 1 for September.

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Answer :

GinnyAnswer
### Solution:

#### August:

1. Determine the ending cash balance in August before any financing:
- Initial cash balance: \[tex]$8,000 - Cash receipts: \$[/tex]45,000
- Cash payments: \[tex]$57,000 Ending cash balance before financing \(= \$[/tex]8,000 + \[tex]$45,000 - \$[/tex]57,000 = -\[tex]$4,000\) 2. Determine if financing is necessary in August: - Desired minimum cash balance: \$[/tex]8,000
- Since the ending cash balance before financing is -\[tex]$4,000, which is less than the minimum of \$[/tex]8,000, financing is needed.

3. Calculate the amount of financing required:
- Amount needed to meet minimum balance [tex]\(= \$8,000 - (-\$4,000) = \$12,000\)[/tex]
- Financing is done in \[tex]$1,000 multiples, so \$[/tex]12,000 is required.

4. Determine the ending cash balance in August after financing:
- Ending cash balance after financing [tex]\(= -\$4,000 + \$12,000 = \$8,000\)[/tex]

So, for August:
- Ending cash balance before financing: [tex]\(-\$4,000\)[/tex]
- Financing required: \[tex]$12,000 - Ending cash balance after financing: \$[/tex]8,000

#### September:

1. Determine the ending cash balance in September before any financing or debt retirement:
- Initial cash balance (ending cash balance from August after financing): \[tex]$8,000 - Cash receipts: \$[/tex]66,000
- Cash payments: \[tex]$56,000 Ending cash balance before financing \(= \$[/tex]8,000 + \[tex]$66,000 - \$[/tex]56,000 = \[tex]$18,000\) 2. Determine if additional financing is necessary in September: - Desired minimum cash balance: \$[/tex]8,000
- Since the ending cash balance before financing is \[tex]$18,000, which is more than the minimum of \$[/tex]8,000, no additional financing is required.

3. There is no need for additional financing in September:

So, for September:
- Ending cash balance before financing: \[tex]$18,000 - Financing required: \$[/tex]0
- Ending cash balance after financing: \[tex]$18,000 ### Summary: - August: - Ending cash balance before financing: \(-\$[/tex]4,000\)
- Financing required: \[tex]$12,000 - Ending cash balance after financing: \$[/tex]8,000

- September:
- Ending cash balance before financing: \[tex]$18,000 - Financing required: \$[/tex]0
- Ending cash balance after financing: \$18,000

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