1. Will the company need any outside financing?. Answer

Added on - 18 Sep 2019

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1. Will the company need any outside financing?Answer. Yes, in the months of April, May, June and July, the company will need differing amounts ofoutside financing.2. What is the minimum line of credit that CBM will need?The company will need to borrow $120,000 in April, $114,500 in May, $17,250 in June, and $248,000in July. The minimum credit line to be arranged must be such as to satisfy CBM’s highest borrowingneeds. Thus, at a minimum the line of credit that CBM will surely need is $248,000.3. What do you think of CBM's cash position during the budget period? Do you see any concerns forthe company in this regard?During the budget period, the months of March, April and June are expected to end with cashshortages. Of these months, June is expected to end up with the worst cash shortage but it must benoted that this cash shortage would have been reduced if tax payments and investment in plantwere not to occur. In all other months, CBM is expected to end with cash excess.4. If you were a bank manager, would you want CBM as your client? Why or why not?Not considering the cash outflows attributable to repayments of borrowed amounts, the cashbudget indicates CBM’s cash situation to get better after June. With better cash flows from July, CBMwould be in a position to start repaying. The accumulated total borrowings of the four months wouldget repaid within two months starting from July. This response, however, is based on the assumptionthat the bank can wait for at least 6 months (which is a short term) before it can expect to getrepaid. In this situation, I would contemplate having CBM as my client.
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