Bhavya stores has projected the monthly cash flow for next year

as under

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

-12

-10

-8

-10

-4

5

-7

-2

15

12

-7

45

Opening balance of cash on 1 st Jan is 6 .5 lakhs

They should have a cash balance of minimum 5 lakhs at the end of every month

To meet the working capital requirement the company has 2 options

1

Take a long term loan in January,repayable in next Jan (loan for 1 year)

and the interest of 1% is to be paid every month starting from Feb.

2

Take monthly loan repayable next month at an interest of 1.5%

They can have cmbination of both,

Cash balance on any month end will earn interst @ .4% which will be

credited next month

Workout the loan plan to minmise the total interest outgo.