XYZ Co., a running business since 10 months, has applied to you for a Non-Fund Based Letter of Credit Facility of value 100,000- for a period of 120 days. The Co., has also provided the undernoted information. Sort out the information so as to enable you to prepare a Cash Budget for a period of six months.
Opening Cash Balance: 106,000; Cash Sales is 60% and Credit Sales of 60 days’ is 40% of sales (40% at the time of purchase and the balance within 60 days); Rent: 15000;(Contract will be renewed at the commencement of the 3th month when it will be increased to 20000;); Electricity: 4500; Water: 750: Purchases: 75% of Sales (25% at the time of purchase and the balance on 45 days’ credit);Salaries: 85,000;An employee has submitted his resignation and
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needs to be paid 100,000- at the end of 2nd month; A Court Case was pending against a Supplier according to which the Co., is liable to pay 250,000- towards cost of materials and other expenses in the 5th month; During the 4th month, a machinery costing 72000- needs to be purchased. Sales is currently at 500,000- per month expected to increase by 8% every quarter. A monthly interest of 12500- is due on the existing loan to the Bank. Machinery Maintenance and Vehicle Maintenance costs 15000-; Company Registration is to be renewed at the end of 2nd month for which the fee of 60,000- will be incurred.
The Bank’s terms will be as follows:-
Cash Margin: 10% of LC Amount
LC Opening Charges: 1%
Document Handling Charges: 2500
Courier Charges: 250

On the basis of the Cash Budget prepared put up your recommendations appropriately:-
1) Whether the applicant is eligible for the LC applied for;
2) If not, what is the amount he is eligible for;
3) Is it possible to suggest to the company the changes they should accept in the Cash Budget to enable them to be eligible for the amount of LC they now require;