Diamond Drillers Inc. had sales in December of $60,000. Sales are expected to grow at 5% per month for the foreseeable future because of increased oil field drilling. All sales are on credit and are collected in the month following the sale. Inventory purchases for January are expected to be $40,000 per month, growing at 6% per month. Because of credit problems over the last year, Diamond Drillers must pay cash for its purchases. Operating expenses are $30,000 per month. There is a tax payment of $5,000 due in May.
Required:
(a) Prepare a monthly analysis of the cash inflows and the cash outflows for Diamond Drillers Inc. for the January to June period.
(b) Assuming Diamond Drillers ended December with $40,000 cash in the bank, when do you expect a bank loan to be needed?