This problem continues the Draper Consulting, Inc., situation from P21-35 of Chapter 21. Assume Draper Consulting began January with $29,000 cash. Management forecasts that collections from credit customers will be $49,000 in January and $51,500 in February. Projected cash payments include equipment purchases ($17,000 in January and $40,000 in February) and operating expenses ($6,000 each month). Draper’s bank requires a $20,000 minimum balance in the store’s checking account. At the end of any month when the account balance dips below $20,000, the bank automatically extends credit to the store in multiples of $5,000. Draper borrows as little as possible and pays back loans each month in $1,000 increments, plus 5% interest on the entire unpaid principal. The first payment occurs one month after the loan.
Requirements
1. Prepare Draper Consulting’s cash budget for January and February 2013.
2. How much cash will Draper borrow in February if collections from customers that month total $21,500 instead of $51,500?