A contractor's startup budget includes $35,000 for equipment, $15,000 for initial marketing, $8,000 for licensing, $12,000 for insurance, and $20,000 for working capital. If they can finance 70% of the total, how much cash do they need?
Correct Answer
B) $27,000
Total startup costs = $35,000 + $15,000 + $8,000 + $12,000 + $20,000 = $90,000. Cash needed = 30% of total = $90,000 × 0.30 = $27,000. The remaining 70% ($63,000) would be financed.
Why This Is the Correct Answer
This is a straightforward percentage calculation problem. First, we add all startup costs to get the total ($90,000). Since 70% can be financed, the contractor must provide 30% in cash. Multiplying $90,000 by 0.30 gives us $27,000 in required cash. The remaining $63,000 would come from financing.
Why the Other Options Are Wrong
Option A: $25,200
This answer ($25,200) would result from calculating 28% of the total costs, which doesn't correspond to the given financing terms of 70%.
Option C: $22,500
This answer ($31,500) appears to result from calculating 35% of the total costs instead of the correct 30% cash requirement.
Option D: $31,500
This answer ($22,500) would result from incorrectly calculating 25% of the total instead of 30%, or from making an error in the initial cost summation.
Memory Technique
Remember 'FLIP IT' - if they finance 70%, you FLip It to find your cash need: 100% - 70% = 30%
Reference Hint
Business and Finance chapter - specifically sections on startup costs and financing calculations
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