File P04_112.xlsx:

Please keep solution in the same format.

112. Based on Robichek et al. (1965). The Korvair Department Store has $100,000 in available cash. At the beginning of each of the next six months, Korvair will receive revenues and pay bills as listed in the file P04_112.xlsx. It is clear that Korvair will have a short-term cash flow problem until the store receives revenues from the Christmas shopping season. To solve this problem, Korvair must borrow money. At the beginning of July, the company takes out a six-month loan. Any money borrowed for a six-month period must be paid back at the end of December along with 9% interest (early payback does not reduce the total interest of the loan). Korvair can also meet cash needs through month-to-month borrowing. Any money borrowed for a one-month period incurs an interest cost of 2.5% per month. Determine how Korvair can minimize the cost of paying its bills on time. E F 5 #2. Problem #112 (40 points) 6 Note: All cash amounts are in $1000s 8 Available cash at the beginning Interest rate on six-month loan Interest rate on one-month loan 10 Jul Aug Sep Oct Nov Dec 12 13 Start of month Beginning cash balance carried over 14 15 Six-month loan One-month loan Cash on hand after taking out loans Interest due for the one-month loan One-month loan repayment due One-month loan and interest to be paid Cash available after loan payments Revenues from sales Bills to be paid Ending cash after revenues and bills 100 700 200 600 300 600 600 400 700 200 900 100 End of December requirements Six-month loan principal due Interest on six-month loan due Last one month loan due Interest on last one-month loan due Cash needed at the end of December Ending cash for December Total interest payments C D E F G A B 1 Department store data 3 (In $1,000s) 4 Revenues 5 Bills Jul $100 $700 Aug $200 $600 Sep $300 $600 $600 Nov $700 $200 Dec $900 $100