A small toy store, Toyco projects the monthly cash flows (in thousands of dollars) in Table 42 during the year 2003. A negative cash flow means that cash outflows exceed cash inflows to the business. To pay its bills, Toyco will need to borrow money early in the year. Money can be borrowed in two ways:
a Taking out a long-term one-year loan in January. Interest of 1% is charged each month, and the loan must be paid back at the end of December.
b Each month money can be borrowed from a short-term bank line of credit. Here, a monthly interest rate of 1.5% is charged. All short-term loans must be paid off at the end of December.
At the end of each month, excess cash earns 0.4% interest. Formulate an LP whose solution will help Toyco maximize its cash position at the beginning of January, 2004.
table 42
Month | Cash Row | Month | Cash Flow |
January | −12 | July | −7 |
February | −10 | August | −2 |
March | −8 | September | 15 |
April | −10 | October | 12 |
May | −4 | November | −7 |
June | 5 | December | 45 |
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