Question 1

Udonis, Inc. has produced the following forecast for cash flow from operations for July

through September, 2009. At the end of June, Udonis expects to having a closing cash

balance of $5,500 and a loan covenant requires the company to maintain a minimum

balance of $5,000.

The company has a line of credit available at an annual interest rate of 12%. It must

pay interest on any loan each month based on the outstanding balance at the end of the

previous month and, to minimize interest expense, it repays loans as soon as funds are

available.

Ignoring taxes, show the company's cash balance and loan outstanding at the end of

each month.

Jul Aug Sep Oct Nov Dec

Operating Cash Flow ($3,000) $400 ($1,000) $5,000 ($2,200) $7,000