Aggressive versus conservative seasonal funding strategy Dynabase Tool has forecast its total funding requirements for the coming year as shown in thefollowing 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 thesecomponents.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) aconservative funding strategy. Assume that under the aggressive strategy, long-term funds finance permanent needs and short-term funds are used to financeseasonal needsC. 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 totalcost 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 theseextcomponents.aLibraialculatesource Press Continue to see more.study10partsremainingContinueOKcation Tools>ype here to search (aservative se-X bomingData Tablethly funding rthly ave(Click on the icon hereinto a spreadsheet.)in order to copy the contents of the data table belowof long-termategy. Assunding stm fundsMonthAmountMonthAmountJuly$11,000,000und inJanuaryFebruary$2,000,000$2,000,000term fundingegies describlity-risk trade-nthly funding$15,000,000AugustSeptembergy.$12,000,000$7,000,000$3,000,000March$2,000,000$3,000,000Octoberthly aveAprilMay$7,000,000NovemberJune$10,000,000December$5,000,000PrintDonemore.

The minimum amount of funds are the permanent component and the balance fund required is the…

Answered: a. Divide the firm's monthly funding…

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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Similar questions

For the following project, compute an EAA: Project A requires you an upfront payment of $270172 and yearly payments of $53311 for 13 years. Your cost of capital is 3.98%,
(Related to Checkpoint 11.1 and Checkpoint 11.4) (IRR and NPV calculation) The cash flows for three independent projects are found below: a. Calculate the IRR for each of the projects. b. If the discount rate for all three projects is 13 percent, which project or projects would you want to undertake? c. What is the net present value of each of the projects where the appropriate discount rate is 13 percent? a. The IRR of Project A is%. (Round to two decimal places.) Data table Year 0 (Initial investment) Year 1 Year 2 Year 3 Year 4 Year 5 Project A $(70,000) $12,000 18,000 19,000 28,000 33,000 Project B $(110,000) $28,000 28,000 28,000 28,000 28,000 Project C $(420,000) $240,000 240,000 240,000
The average accounting rate of return (AAR): Select one: A. is the best method of financially analysing mutually exclusive projects. B. is similar to the return on assets ratio. C. measures net income as a percentage of the sales generated by a project. D. considers the time value of money. E. is the primary methodology used in analyzing independent projects.
Why should the cost of capital used in capital budgeting be calculated as a weighted average of the capital component rather than the cost of the specific financing used to fund a particular project? Please explain using the images attached.
10.-From the following options, choose the four that correspond to the application of financial management in the long term. A) Preparing financial reports B) Long-term investments C) Manage working capital D) Capital structure E) Support in identifying SWOT F) Budgeting G) Financial strategy (Class excercise)
Keane & Co plc is considering two possible investments. The company requires an Accounting Rate of Return of 12% and payback within 2 years. It has a cost of capital of 12%. Forecast sales and production units Year 1 Year 2 Year 3 Year 4 Contribution per unit Fixed cost per year Initial investment Residual (scrap) value Accounting Rate of Return Internal Rate Return Discount factors at 12% are: Year 1 Year 2 Year 3 Year 4 Year 5 0.893 0.797 0.712 0.636 0.567 Project J 60,000 110,000 80,000 50,000 £40 £800,000 £7,600,000 £300,000 9.5% 8% Project K 30,000 24,000 20,000 12,000 £120 £700,000 £5,500,000 £150,000 19% 18%
2. Match each of the following terms with the appropriate definition. The time expected to recover the cash initially invested in a project. A minimum acceptable rate of return on a potential investment. 1. Discounting A return on investment which results in a zero net present value. 2. Net Present Value A comparison of the cost of 3. Capital Budgeting an investment to its projected cash flows at a single point in time. 4. Accounting Rate of Return 5. Net Cash Flow A capital budgeting method focused on the rate of return on a project's average investment. 6. Internal Rate of Return 7. Payback Period The process of restating future cash flows in terms 8. Hurdle Rate of present time value. Cash inflows minus cash outflows for the period. A process of analyzing alternative long-term investments. >
All of the following are data rules associated with capital budgeting EXCEPT: a. Include changes across the full life cycle of the product or service. b. Include changes in every functional area of the business. c. Include financing flows in the cash flows of all proposed projects. d. Include forecasted inflation in the cash flow estimates.
Define each of the following terms:c. Additional funds needed (AFN); AFN equation; capital intensity ratio;self-supporting growth rate
The average accounting rate of return (AAR): is the primary methodology used in analyzing independent projects. O O O O O is the best method of financially analyzing mutually exclusive projects. is similar to the return on assets ratio. considers the time value of money. measures net income as a percentage of the sales generated by a project.
You are evaluating five different investments, all of which involve an upfront outlay of cash. Each investment will provide a single cash payment back to you in the future. Details of each investment appears here:. Calculate the IRR of each investment. State your answer to the nearest basis point (i.e., the nearest 1/100th of 1%, such as 3.76%). The yield for investment A is %. (Round to two decimal places.) Initial Future Investment Investment Value Im A $1,900 $4,029 B $9,600 $13,121 C $500 D $3,200 E $5,900 Data table $1,759 $4,139 $9,079 End of Year 11 9 18 3 12 I X
e. Estimate the required net operating working capital (NOWC) for each year and the cash flow due to changes in NOWC. f. Calculate the after-tax salvage cash flow. g. Calculate the project cash flows for each year. Based on these cash flows and the average project cost of capital, what are the project’s NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest that the project should be undertaken?

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