Suppose you are a banker, and the controller of a small company asks you for a short- term $10,000 loan, due in 120 days. Interest on the loan would be 12%, due when the loan is paid back. To support his request, he gives you the following information from his company’s cash budget for the next quarter:

January February March Quarter Cash flow from operations:

Cash receipts from sales $20,000 $14,400 $13,600 $48,000 Cash payments for Purchases $15,000 $10,800 $10,200 $36,000 Selling expenses 3,300 3,300 3,300 9,900 General and administrative expenses 1,650 650 650 2,950 Total payments $19,950 $14,750 $14,150 $48,850 Net cash inflow (outflow) from operations $ 50 ($ 350) ($ 550) ($ 850) Cash flow from investments:

Cash receipt from sale of equipment 3.000 3.000 Net cash inflow (outflow) from operations and investments $ 50 $ 2,650 ($ 550) $ 2,150 Add: Beginning cash balance 4,880 4,930 7,580 4,880 Ending cash balance from operations and investments $ 4,930 $ 7,580 $ 7,030 $ 7,030 Required: (1) What is your first reaction?

(2) Before making your decision, what else would you like to know about this company? Can any of what you would like to know be found in any of the company’s other budgets or financial statements? What other budgets or statements would you like the owner to provide for you? What information would you hope to get from each of these budgets or statements?

(3) What other information would help you make your decision?

(4) Can you think of any circumstances in which it would be a good idea to loan this company $10,000?

(5) Depending on the information you are able to get, what other alternatives are there to loaning or not loaning this company $10,000?  lp85