¹⁶Howe Ltd. is trying to decide whether it is going to need to take a loan in coming January to buy a new microcomputer system. The microcomputer will cost $8,800.

The president, Joan Howe, has collected the following information about her operations as at December 31:

1.Balance of selected ledger accounts:

Cash

$2,500

Accounts payable

6,667

2.Sales history and forecast (unit selling price, $10):

October

(actual)

$45,000

November

(actual)

33,000

December

(actual)

45,000

January

(forecast)

60,000

3.All sales are on credit and are due 30 days after the sale.

4.Cash payments for purchases are as follows: two-thirds in the month of purchase; one-third in the month after that.

5.Howe Ltd. collects 50% of a month's sales one month after the sale and 45% two months after the sale; 5% are uncollectible.

6.The company purchases inventory as required under terms of 2/10, net 30. It always takes the 2% discount, but records purchases at gross cost.

7.Inventory costs $5 per unit, gross.

8.Other expenses, all paid in cash as incurred, average about 30% of the sales dollar amount. Depreciation is part of these expenses and costs $3,000 per month.

9.Howe Ltd. keeps a minimum cash balance of $4,000.