Question

Holiday Tree Farm has a cash balance of $34 and a short-term loan balance of $180 at the beginning of Q1. The net cash inflow for the first quarter is $36 and for the second quarter there is a net cash outflow of $48. All cash shortfalls are funded with short-term debt. The firm pays 2 percent of its prior quarter's ending loan balance as interest each quarter. The minimum cash balance is $20. What is the short-term loan balance at the end of Q2

Answer 1

Answer:

$184.27

Explanation:

initial cash balance $34

initial short-term loan balance $180

net cash inflow Q1 = $36

repaid $50 to short term loan including interests ($3.60)

initial cash balance $20

short-term loan balance = $133.60

net cash outflow Q2 = $48

short term loan was taken to cover this deficit plus $2.67 in interests ($133.60 x 2%)

short term loan balance at the end of Q2 = $133.60 + $48 + $2.67 = $184.27