A construction company projects the following cash flows for the next quarter: Month 1: -$50,000, Month 2: +$25,000, Month 3: +$75,000. Starting with a cash balance of $30,000, what will be the ending cash balance?
Correct Answer
D) $80,000
Starting balance $30,000 + Month 1 (-$50,000) + Month 2 (+$25,000) + Month 3 (+$75,000) = $80,000. The net cash flow over three months is +$50,000.
Why This Is the Correct Answer
The correct answer is A ($80,000) because we must track the cumulative cash balance month by month. Starting with $30,000, we add each month's cash flow sequentially: $30,000 - $50,000 + $25,000 + $75,000 = $80,000. This represents the actual cash position at the end of the quarter, accounting for the timing of cash inflows and outflows.
Why the Other Options Are Wrong
Option A: $100,000
Option D ($100,000) likely results from adding the starting balance to only the positive cash flows: $30,000 + $25,000 + $75,000 - $30,000 = $100,000, or some other computational error that doesn't properly account for all cash movements.
Option B: $50,000
Option B ($50,000) incorrectly represents only the net cash flow over the three months without including the starting balance. This would be the result if you only calculated -$50,000 + $25,000 + $75,000 = $50,000, ignoring the initial $30,000 cash position.
Memory Technique
Remember 'SCAN': Starting balance + Cash flows (Algebraically) = Net ending balance. Always include the starting point in your calculation.
Reference Hint
Business and Finance chapter covering cash flow analysis and working capital management
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