A Soap Processing business plans to borrow money and build up inventory now in a

Question

A Soap Processing business plans to borrow money and build up inventory now in anticipation of the holiday season. The following figures are the projected revenues and liabilities the company has for the next six months:

Month

Revenues

Liabilities

July

30000

70000

August

30000

50000

Sep

50000

80000

Oct

55000

30000

Nov

70000

40000

Dec

100000

20000

There are two borrowing options available to the company:

(1) a six-month loan that is available at the beginning of July and needs to be paid at the end of December with 11% interest,

(2) a monthly loan that is available at the beginning of each month and needs to be paid at the beginning of the following month with 5% interest.

Help the business determine a borrowing plan that will meet his cash flow needs while minimizing the total interest he pays over the next six months.

Month

Revenues

Liabilities

July

30000

70000

August

30000

50000

Sep

50000

80000

Oct

55000

30000

Nov

70000

40000

Dec

100000

20000

Explanation / Answer

Ans

Option A Option B Details 6 Months Working capital Loan Mix of 6 Months Working capital Loan and 1 month 5% loan Interest Cost               4,950.000                3,679.17

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.