A company has a beginning of period cash balance of $60 million, a minimum cash balance of $20 million, and its free cash flow for the current period was negative $80 million. How much does the company need to draw from its revolver?

Prepare for your Financial Statement Modeling Test. Utilize flashcards and multiple choice questions with detailed explanations. Ace your exam with thorough preparation!

Multiple Choice

A company has a beginning of period cash balance of $60 million, a minimum cash balance of $20 million, and its free cash flow for the current period was negative $80 million. How much does the company need to draw from its revolver?

The main idea is to figure out how much liquidity is needed to keep the cash balance at or above the minimum, after accounting for the period’s cash flow.

Start with the opening cash of 60. A negative free cash flow of 80 reduces cash by 80, so cash at the end of the period before any revolver draw would be 60 − 80 = −20. To meet a minimum cash balance of 20, the company must cover the shortfall of 40. Drawing 40 from the revolver brings ending cash to 20, satisfying the minimum.

Drawing more than 40 would leave excess cash beyond the minimum, which isn’t necessary, so 40 is the appropriate amount.

A company has a beginning of period cash balance of $60 million, a minimum cash balance of $20 million, and its free cash flow for the current period was negative $80 million. How much does the company need to draw from its revolver?

Prepare for your Financial Statement Modeling Test. Utilize flashcards and multiple choice questions with detailed explanations. Ace your exam with thorough preparation!

A company has a beginning of period cash balance of $60 million, a minimum cash balance of $20 million, and its free cash flow for the current period was negative $80 million. How much does the company need to draw from its revolver?

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