$[$The following information applies to the questions displayed below.$]$

$"$We really need to get this new material$-$handling equipment in operation just after the new year begins. I

hope we can finance it largely with cash and marketable securities$,$ but if necessary we can get a short$-$term

loan down at MetroBank." This statement by Beth Davies$-$Lowry, president of Intercoastal Electronics

Company, concluded a meeting she had called with the firm's top management. Intercoastal is a small,

rapidly growing wholesaler of consumer electronic products. The firm's main product lines are small kitchen

appliances and power tools. Marcia Polosky, Intercoastal's General Manager of Marketing, has recently

completed a sales forecast. She believes the company's sales during the first quarter of $201$ will increase by

$10$ percent each month over the previous month's sales. Then Polosky expects sales to remain constant for

several months. Intercoastal's projected balance sheet as of December $31,200,$ is as follows:

Cash

Accounts receivable

Marketable securities

Inventory

Buildings and equipment $($net of accumulated

depreciation$)$

Total assets

Accounts payable

Bond interest payable

Property taxes payable

Bonds payable ; due in $206$

Common stock

Retained earnings

Total liabilities and stockholders' equity

Joaquin Rafael, the assistant controller, is now preparing a monthly budget for the first quarter of $201.$ In the

process, the following information has been accumulated:

Projected sales for December of $200$ are $$500,000.$ Credit sales typically are $70$ percent of total sales.

Intercoastal's credit experience indicates that $20$ percent of the credit sales are collected during the

month of sale, and the remainder are collected during the following month.

Intercoastal's cost of goods sold generally runs at $80$ percent of sales. Inventory is purchased on account,

and $30$ percent of each month's purchases are paid during the month of purchase. The remainder is paid

during the following month. In order to have adequate stocks of inventory on hand, the firm attempts to

have inventory at the end of each month equal to half of the next month's projected cost of goods sold.

Rafael has estimated that Intercoastal's other monthly expenses will be as follows:

Sales salaries

Advertising and promotion

Administrative salaries

Depreciation

Interest on bonds

Property taxes

$$12,000$

$4,000$

$12,000$

$20,000$

$1,500$

$1,200$

In addition, sales commissions run at the rate of $3$ percent of sales.

Intercoastal's president, Davies$-$Lowry, has indicated that the firm should invest $$115,000$ in an automated

inventory$-$handling system to control the movement of inventory in the firm's warehouse just after the new

year begins. These equipment purchases will be financed primarily from the firm's cash and marketable

securities$.$ However, Davies$-$Lowry believes that Intercoastal needs to keep a minimum cash balance of

$$20,000.$ If necessary, the remainder of the equipment purchases will be financed using short$-$term credit

from a local bank. The minimum period for such a loan is three months. Rafael believes short$-$term interest

rates will be $10$ percent per year at the time of the equipment purchases. If a loan is necessary, Davies$-$

Lowry has decided it should be paid off by the end of the first quarter if possible.

Intercoastal's board of directors has indicated an intention to declare and pay dividends of $$50,000$ on

the last day of each quarter.

The interest on any short$-$term borrowing will be paid when the loan is repaid. Interest on Intercoastal's

bonds is paid semiannually on January $31$ and July $31$ for the preceding six$-$month period.

Property taxes are paid semiannually on February $28$ and August $31$ for the preceding six$-$month period.