a. Divide the firm's monthly funding requirement into (1) a permanent component and (2) a seasonal component, and find the monthly average for each of these components. b. Describe the amount of long-term and short-term financing used to meet the total funds requirement under (1) an aggressive funding strategy and (2) a conservative funding strategy. Assume that under the aggressive strategy, long-term funds finance permanent needs and short-term funds are used to finance seasonal needs. c. Assuming that short-term funding costs 5% annually and that the cost of long-term funding is 10% annually, use the averages found in part a to calculate the total cost of each of the strategies described in part b. Assume that the firm can earn 3% on any excess cash balances. d. Discuss the profitability-risk trade-offs associated with the aggressive strategy and those associated with the conservative strategy.
a. Divide the firm's monthly funding requirement into (1) a permanent component and (2) a seasonal component, and find the monthly average for each of these components. b. Describe the amount of long-term and short-term financing used to meet the total funds requirement under (1) an aggressive funding strategy and (2) a conservative funding strategy. Assume that under the aggressive strategy, long-term funds finance permanent needs and short-term funds are used to finance seasonal needs. c. Assuming that short-term funding costs 5% annually and that the cost of long-term funding is 10% annually, use the averages found in part a to calculate the total cost of each of the strategies described in part b. Assume that the firm can earn 3% on any excess cash balances. d. Discuss the profitability-risk trade-offs associated with the aggressive strategy and those associated with the conservative strategy.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question

Transcribed Image Text:e
Aggressive versus conservative seasonal funding strategy Dynabase Tool has forecast its total funding requirements for the coming year as shown in the following
table: E
otions
a. Divide the firm's monthly funding requirement into (1) a permanent component and (2) a seasonal component, and find the monthly average for each of these
components.
b. Describe the amount of long-term and short-term financing used to meet the total funds requirement under (1) an aggressive funding strategy and (2) a conservative
funding strategy. Assume that under the aggressive strategy, long-term funds finance permanent needs and short-term funds are used to finance seasonal needs.
c. Assuming that short-term funding costs 5% annually and that the cost of long-term funding is 10% annually, use the averages found in part a to calculate the total cost
of each of the strategies described in part b. Assume that the firm can eam 3% on any excess cash balances.
d. Discuss the profitability-risk trade-offs associated with the aggressive strategy and those associated with the conservative strategy.
a. Divide the firm's monthly funding requirement into (1) a permanent component and (2) a seasonal component, and find the monthly average for each of these
components.
The monthly average of the firm's permanent funding requirement is $
(Round to the nearest dollar.)
The monthly average of the fimm's seasonal funding requirement is $
(Round to the nearest dollar.)
b. Describe the amount of long-term and short-term financing used to meet the total funds requirement under (1) an aggressive funding strategy and (2) a
Click to select your answer(s).
"pe here to search
inser

Transcribed Image Text:conservative se
oming
Data Table
nonthly funding re
hly ave
in order to copy the contents of the data table below
punt of long-term
sume that under
ort-term funding d
gies described in
tability-risk trade-d
(Click on the icon here
into a spreadsheet.)
ding st
sed to f
nd in p
Month
Amount
Month
Amount
$2,000,000
$2,000,000
$2,000,000
July
August
September
$11,000,000
$15,000,000
January
by:
February
monthly funding re
$9,000,000
nly ave
March
October
$8,000,000
$4,000,000
$5,000,000
April
$3,000,000
$3,000,000
May
November
e of the firm's perr
June
$9,000,000
December
e of the firm's seas
Print
Done
ding str
nount of long-term a
answer(s).
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