11 International Golf Ltd operates a large warehouse, selling golf equipment direct to the public by mail order and to small retail outlets. The cash position of the company has caused some concern in recent months. At the beginning of December, there was an overdraft at the bank of 56,000. The following data concerning income and expenses has been collected in respect of the forthcoming six months: March December 000 January 000 February 000 April 000 May 000 000 220 150 180 18 120 156 15 40 170 195 20 160 250 150 30 Expected sales Purchases Advertising Rent Rates Wages Sundry expenses 280 160 30 25 40 16 20 30 16 24 18 24 18 26 20 26 20 26 The company also intends to purchase and pay for new motor vans in February at a cost of 24,000 and to pay taxation due on 1 March of 30,000. Sales to the public are on a cash basis and sales to retailers are on two months' credit. Approximately 40 per cent of sales are made to the public. Debtors at the beginning of December are 110,000, 70 per cent of which are in respect of November sales. Purchases are on one month's credit and, at the beginning of December, the trade creditors were 140,000. The purchases made in December, January and February are considered necessary to stock up for the sales demand from March onwards. All other expenses are paid in the month in which they are incurred. Sundry expenses include 8,000 per month for depreciation. Required (a) Explain the benefits to a business of preparing a cash flow forecast. (b) Identify and discuss the costs to a business associated with: (i) holding too much cash; (ii) holding too little cash. (c) Prepare a cash flow forecast for International Golf Ltd for the six months to 31 May, which shows the cash balance at the end of each month. (d) State what problems International Golf Ltd is likely to face during the next six months and how these might be dealt with