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CBM Line of Credit and Finance

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Added on  2019-09-18

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Yes, in the months of April, May, June and July, the company will need differing amounts of outside financing. The company will need to borrow $120,000 in April, $114,500 in May, $17,250 in June, and $248,000 in July. Not considering the cash outflows attributable to repayments of borrowed amounts, the cash budget indicates CBM’s cash situation to get better after June.
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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 of outside 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 borrowing needs. 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 for the company in this regard?During the budget period, the months of March, April and June are expected to end with cash shortages. Of these months, June is expected to end up with the worst cash shortage but it must be noted that this cash shortage would have been reduced if tax payments and investment in plant were 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 cash budget 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 get repaid. In this situation, I would contemplate having CBM as my client.
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