If the minimum cash balance is $20 million and the company starts with $60 million in cash and the free cash flow is -$80 million, what is the ending cash balance after the revolver draw to satisfy the minimum?

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Multiple Choice

If the minimum cash balance is $20 million and the company starts with $60 million in cash and the free cash flow is -$80 million, what is the ending cash balance after the revolver draw to satisfy the minimum?

Explanation:
This question tests how a minimum cash balance covenant is maintained when cash flow is negative and a revolver can be drawn to fund the shortfall. Start with 60 million in cash. Free cash flow of -80 million reduces cash to 60 - 80 = -20 million. To satisfy the minimum cash balance of 20 million, the company must add 40 million from the revolver. After drawing 40 million, ending cash becomes -20 + 40 = 20 million. So the ending cash balance is 20 million.

This question tests how a minimum cash balance covenant is maintained when cash flow is negative and a revolver can be drawn to fund the shortfall. Start with 60 million in cash. Free cash flow of -80 million reduces cash to 60 - 80 = -20 million. To satisfy the minimum cash balance of 20 million, the company must add 40 million from the revolver. After drawing 40 million, ending cash becomes -20 + 40 = 20 million. So the ending cash balance is 20 million.

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