Question $(2)$

You are looking to renew MM Ltd$\text{'}$s overdraft facility. The limit has been fully respected $($the peak usage came within $$75,000$ of the limit$),$ and although an

$8\%$ sales increase is anticipated, management does not believe an increase is required. You have reviewed management's projections, but you have just

learned that because of a dispute with a supplier over quality, MM Ltd$.$ will now be purchasing all its raw materials from a new supplier. This will result in a

price increase of $1\mathrm{.}5\%,$ plus it must now pay on strict $30-$day terms. Neither of these is reflected in the projections. Does management's request to renew

seem reasonable?

The overdraft will not need increasing because the impact of the price increase will be offset by the change in supplier terms.

The current overdraft limit does not appear to be high enough and will almost certainly need increasing.

The current overdraft limit appears to be sufficient for the next year, even allowing for the supplier change.

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