Given the table:
| | Disposable income | $1,600 |
|---|------------------------|--------|
| | Interest on deposits | $0 |
| | Income from investments | $0 |
| | Total Cash Inflow | |
| | | |
| | Cash outflows | |
| | Rent | $575 |
| | Utilities | $120 |
| | Cable and telephone | $80 |
| | Groceries | $320 |
| | Car expenses | $150 |
| | Recreation | $80 |
| | Insurance | $115 |
| | Miscellaneous | $50 |
| | Total Cash Outflow | |
Which of the following is true?
A. The net cash flow is negative.
B. The net cash flow is zero.
C. The net cash flow is positive.
D. The net cash flow can't be determined.
Answer (1)
Calculate total cash inflow by summing all income sources: $1600 + $0 + $0 = $1600.
Calculate total cash outflow by summing all expenses: $575 + $120 + $80 + $320 + $150 + $80 + $115 + $50 = $1490. - Determine net cash flow by subtracting total outflow from total inflow: $1600 - $1490 = $110.
Since the net cash flow is positive, the answer is c. The net cash flow is positive.
Explanation
Problem Analysis We are given a table of cash inflows and outflows and asked to determine if the net cash flow is negative, zero, or positive. To do this, we need to calculate the total cash inflow, the total cash outflow, and then the net cash flow.
Calculate Total Cash Inflow The total cash inflow is the sum of disposable income, interest on deposits, and income from investments. From the table, we have:
Disposable income = $1,600 Interest on deposits = $0 Income from investments = $0
So, the total cash inflow is: 1600 + 0 + 0 = 1600 Total Cash Inflow = $1,600
Calculate Total Cash Outflow The total cash outflow is the sum of rent, utilities, cable and telephone, groceries, car expenses, recreation, insurance, and miscellaneous expenses. From the table, we have:
Rent = $575 Utilities = $120 Cable and telephone = $80 Groceries = $320 Car expenses = $150 Recreation = $80 Insurance = $115 Miscellaneous = $50
So, the total cash outflow is: 575 + 120 + 80 + 320 + 150 + 80 + 115 + 50 = 1490 Total Cash Outflow = $1,490
Calculate Net Cash Flow The net cash flow is the total cash inflow minus the total cash outflow:
Net Cash Flow = Total Cash Inflow - Total Cash Outflow Net Cash Flow = $1,600 - $1,490 = $110 Since the net cash flow is $110, which is greater than zero, the net cash flow is positive.
Final Answer The net cash flow is positive, so the correct answer is: c. The net cash flow is positive.
Examples
Understanding cash flow is crucial for managing personal finances. For example, if you're planning a monthly budget, knowing your income (cash inflow) and expenses (cash outflow) helps you determine if you have a surplus or deficit. A positive cash flow means you're earning more than you're spending, allowing you to save or invest. Conversely, a negative cash flow indicates you're spending more than you earn, which might require adjustments to your spending habits or finding additional income sources.
