Toyz is a large discount toy store in Valley Wood Mall. The store typically has slow sales in the summer months that increase dramatically and rise to a peak at Christmas. During the summer and fall, the store must build up its inventory to have enough stock for the Christmas season. To purchase and build up its stock during the months when its revenues are low, the store borrows money.
Following is the store’s projected revenue and liabilities schedule for July through December (where revenues are received and bills are paid at the first of each month):
Month Revenues
July $20,000 August 30,000 September 40,000 October 50,000 November 80,000 December 100,000
Liabilities
$60,000 60,000 80,000 30,000 30,000
20,000
At the beginning of July, the store can take out a 6-month loan that carries an 11% interest rate and must be paid back at the end of December. The store cannot reduce its interest payment by paying back the loan early. The store can also borrow money monthly at a rate of 5% interest per month.
Money borrowed on a monthly basis must be paid back at the beginning of the next month. The store wants to borrow enough money to meet its cash flow needs while minimizing its cost of borrowing.
Formulate a linear programming model for this problem.
Solve this model by using the computer.
What would the effect be on the optimal solution if Toyz could secure a 9% interest rate for a 6-month loan from another bank?
Please provide with excel format