Leichter Auto Parts, a family-owned auto parts store, began January with $10,500 cash. Management forecasts that collections from credit customers will be $11,000 in January and $15,200 in February. The store is scheduled to receive $8,500 cash on a business note receivable in January. Projected cash payments include inventory purchases ($15,600 in January and $14,800 in February) and selling and administrative expenses ($2,900 each month).
Leichter Auto Parts's bank requires a $10,000 minimum balance in the store's checking account. At the end of any month when the account balance falls below $10,000, the bank automatically extends credit to the store in multiples of $1,000. Leichter Auto Parts borrows as little as possible and pays back loans in quarterly installments of $2,000, plus 4% APR interest on the entire unpaid principal. The first payment occurs three months after the loan.
Requirements
1. Prepare Leichter Auto Parts's cash budget for January and February.
2. How much cash will Leichter Auto Parts borrow in February if collections from customers that month total $14,200 instead of $15,200?