WinterWearhouse operates a clothing store specializing in ski apparel. Given the seasonal nature of its business, often there is somewhat of an imbalance between when bills must be paid for inventory purchased and when the goods actually are sold and cash is received. Over the next six months, the company expects cash receipts and requirements for bill paying as follows:

The company likes to maintain a cash balance of at least $20,000 and currently has $100,000 cash on hand. The company can borrow money from a local bank for the following term/rate structure: 1 month at 1%, 2 months at 1.75%, 3 months at 2.49%, 4 months at 3.22%, and 5 months at 3.94%. When needed, money is borrowed at the end of a month and repaid, with interest, at the end of the month in which the obligation is due. For instance, if the company borrows $10,000 for 2 months in month 3, it would have to pay back $10,175 at the end of month 5.

a. Create a spreadsheet model for this problem and solve it.

b. What is the optimal solution?

c. Suppose its bank limits WinterWearhouse to borrowing no more than $100,000 at each level in the term/rate structure. How would this restriction change the optimal solution?

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## Month 2 3 4 5 6 Cash Receipts $100,000 $225,000 %275,000 $350,000 $475,000 $625,000 Bills Due $400,000 $500,000 $600,000 $300,000 $200,000 $100,000