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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

Available cash at the beginning Interest rate on six-month loan Interest rate on one-month loan Month Jul Aug Sep Oct Nov Dec Beginning cash balance carried over Six-month loan One-month loan Cash on hand after taking out loans Interest on one-month loan Loan and interest payments Cash available after loan payments 100 200 600 300 Revenues from sales Bills to be paid Ending cash after revenues and bills 600 400 700 200 900 100 700 600 End of December requirements Six-month loan principal due Interest on six-month loan due One month loan due One month loan interest due Total cash required (December) Available cash (December) Total interest payments Available cash at the beginning Interest rate on six-month loan Interest rate on one-month loan Month Jul Aug Sep Oct Nov Dec Beginning cash balance carried over Six-month loan One-month loan Cash on hand after taking out loans Interest on one-month loan Loan and interest payments Cash available after loan payments 100 200 600 300 Revenues from sales Bills to be paid Ending cash after revenues and bills 600 400 700 200 900 100 700 600 End of December requirements Six-month loan principal due Interest on six-month loan due One month loan due One month loan interest due Total cash required (December) Available cash (December) Total interest payments