CASH FLOW PLANNING

Winter Wearhouse operates a clothing store specializing in ski apparel. Given the seasonal nature of their business, there is often somewhat of an imbalance between when bills must be paid for inventory purchased and when the goods are actually sold and cash is received. Over the next 6 months, the company expects cash receipts and requirements for bill paying as shown below. The company likes to maintain a cash balance of at least $20,000 and currently has $100,000 cash on hand. The company can borrow money from a local bank for the following term/rate structure: 1-month at 1%, 2-months at 1.75%, 3-months at 2.49%, 4-months at 3.22%, and 5-months at 3.94%. When needed, money is borrowed at the end of a month and repaid, with interest, at the end of the month in which the obligation is due. For instance, if the company borrows $10,000 for 2 months in month 3, they would have to pay back $10,175 at the end of month 5.