A construction company projects the following monthly cash flows: January inflow $180,000, outflow $165,000; February inflow $145,000, outflow $170,000; March inflow $200,000, outflow $155,000. Starting with $25,000 cash, what is the projected cash balance at the end of March?
Correct Answer
A) $75,000
Starting balance $25,000 + January net $15,000 + February net ($25,000) + March net $45,000 = $60,000. Wait, let me recalculate: $25,000 + $15,000 - $25,000 + $45,000 = $60,000. The answer should be $60,000, but that's option A. Let me verify: Jan: +15k, Feb: -25k, Mar: +45k. Total change: +35k. $25k + $35k = $60k.
Why This Is the Correct Answer
The correct answer is A ($60,000), not D as initially stated. Starting with $25,000, we calculate monthly net cash flows: January ($180k - $165k = +$15k), February ($145k - $170k = -$25k), and March ($200k - $155k = +$45k). Adding these sequential changes: $25,000 + $15,000 - $25,000 + $45,000 = $60,000.
Why the Other Options Are Wrong
Option B: $65,000
This represents an error of adding $10,000 too much, likely from incorrectly calculating February's outflow as positive instead of negative, or other computational mistakes.
Option D: $60,000
This represents an error of adding $15,000 too much, possibly from treating February's negative cash flow as positive or making multiple calculation errors in the monthly net flows.
Memory Technique
Use the acronym 'SINO' - Starting balance, Inflows, Net calculation, Outflows. Always subtract outflows from inflows first, then apply the net to your running balance.
Reference Hint
Florida Building Construction Standards, Chapter on Project Management and Financial Controls, or Business and Finance for Contractors section
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