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.
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.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Aggressive versus conservative seasonal funding strategy Dynabase Tool has forecast its total funding requirements for the coming year as shown in the
following table:
a. Divide the firm's monthly funding requirement into (1) a pemanent 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 conservatíve 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
ext
components.
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Transcribed Image Text:(a
servative se
-X boming
Data Table
thly funding r
thly ave
(Click on the icon here
into a spreadsheet.)
in order to copy the contents of the data table below
of long-term
ategy. Assun
ding st
m funds
Month
Amount
Month
Amount
July
$11,000,000
und in
January
February
$2,000,000
$2,000,000
term funding
egies describ
lity-risk trade-
nthly funding
$15,000,000
August
September
gy.
$12,000,000
$7,000,000
$3,000,000
March
$2,000,000
$3,000,000
October
thly ave
April
May
$7,000,000
November
June
$10,000,000
December
$5,000,000
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