Dynabase Tool has forecast its total funding requirements for the coming year as shown in the following table: (PICTURE).. . 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.
Dynabase Tool has forecast its total funding requirements for the coming year as shown in the following table: (PICTURE).. . 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.
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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Aggressive versus conservative seasonal funding strategy Dynabase Tool has forecast its total funding requirements for the coming year as shown in the following table:
(PICTURE)..
.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.
Transcribed Image Text:Data Table
(Click on the icon here in order to copy the contents of the data table below
into a spreadsheet.)
Month
Amount
Month
Amount
January
$2,000,000
July
$11,000,000
February
$2,000,000
August
$16,000,000
$2,000,000
$9,000,000
$5,000,000
$4,000,000
March
September
April
$5,000,000
October
May
$6,000,000
November
June
$8,000,000
December
$5,000,000
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