Cash deficit - cash budget, Financial Management

Assignment Help:

In two of the four months of the cash budget Thorne Co has a cash shortage with the highest cash deficit being the opening balance of $40000. This cash shortage which has occurred even though the company has a loan of $200000 is likely to be financed by an overdraft. An benefit of an overdraft is that it is a flexible source of finance since it can be used as and when required provided that the overdraft limit is not exceeded. Additionally Thorne Co will only have to pay interest on the amount of the overdraft facility used with the interest being charged at a variable rate linked to bank base rate. On the contrary interest is paid on the full $200000 of the company's bank loan whether the money is used or not. The interest rate on the overdraft is probable to be lower than that on long-term debt.

A drawback of an overdraft is that it is repayable on demand although in practice notice is given of the intention to withdraw the facility. The interest payment may as well increase since the company is exposed to the risk of an interest rates increase. Banks typically ask for some form of security such as a floating charge on the company's assets or a personal guarantee from a company's owners in order to reduce the risk associated with their lending.


Related Discussions:- Cash deficit - cash budget

CVP analysis, What is the meaning of Breakeven point?

What is the meaning of Breakeven point?

Operating cycle, Uses of operating cycle in business

Uses of operating cycle in business

Profitability index method - benefit cost ratio, Do you guys provide Profit...

Do you guys provide Profitability Index Method assignment help? I need writing a report on Profitability Index Method and it is about 2000 words. Let me know. I need to buy your so

Semi-strong-form of efficiency, Semi-Strong form level of Efficiency This...

Semi-Strong form level of Efficiency This level states that share prices reflects all available public information. (past and present information). If the market has achieved thi

Illustrate modern method of measurements, Q. Illustrate Modern Method of Me...

Q. Illustrate Modern Method of Measurements? Holding Period Yield: The holding period yield is one of the modern techniques on Measuring return. It serves two purposes: a) I

Explain interest rate risk, Explain Interest rate risk Interest rate r...

Explain Interest rate risk Interest rate risk considers to interest rates changing not favorably before the swap dealer can lay off with an opposing counterparty the unplaced

Agency relationship, Solutions to shareholders and government agency proble...

Solutions to shareholders and government agency problemquestion #Minimum 100 words accepted#

Define a convertible bond, Define a Convertible Bond A convertible bond...

Define a Convertible Bond A convertible bond issue permits the investor to exchange the bond for a pre-defined number of equity shares of the issuer.  The convertible bond’s fl

Treasury bills, T-Bills are issued to enable the government to tide o...

T-Bills are issued to enable the government to tide over short-term liquidity requirements with maturities varying from a fortnight to a year. These instruments a

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd