Prolog Ltd is a small wholesaler of powerful microcomputers. It has in recent months been selling 50 machines a month at a price of £2,000 each. These machines cost £1,600 each. A new model has just been launched and this is expected to offer greatly enhanced performance. Its selling price and cost will be the same as for the old model. From the beginning of January Year 6, sales are expected to increase at a rate of 20 machines each month until the end of June Year 6 when sales will amount to 170 units per month. They are expected to continue at that level thereafter. Operating costs, including depreciation of £2,000 a month, are forecast as follows:

Jan Feb Mar Apr May June Operating costs (£000) 6 8 10 12 12 12 Prolog expects to receive no credit for operating costs. Additional shelving for storage will be bought, installed and paid for in April costing £12,000. Tax of £25,000 is due at the end of March. Prolog expects that receivables will take two months to pay. To give its customers a good level of service, Prolog plans to hold enough inventory at the end of each period to fulfil anticipated demand from customers in the following month. The computer manufacturer, however, grants one month’s credit to Prolog. Prolog Ltd’s statement of financial position (balance sheet) appears below.

Statement of financial position (balance sheet) at 31 December Year 5

£000 Non-current assets 80 Current assets Inventory 112 Receivables 200 Cash –

312 Total assets 392 Equity Share capital – 25p ordinary shares 10 Retained earnings 177 187 Current liabilities Trade payables 112 Tax due 25 Borrowings – bank overdraft 68 205 Total equity and liabilities 392 Required:

(a) Prepare a projected cash flow statement for Prolog Ltd showing the cash balance or required overdraft for the six months ending 30 June Year 6.

(b) State briefly what further information a banker would require from Prolog before granting additional overdraft facilities for the anticipated expansion of sales.