Hillary's Health Food Store has estimated monthly current asset financing requirements for the next six months as follows: February March April May June Current Assets January Temporary Permanent $6,000 $4,000 $1,000 $4,000 $2,000 $4,000 $6,500 $4,000 $5,000 $4,000 $2,000 $4,000 Projected annual borrowing rates for the next six months are: February 6.0% March 9.0% April 12.0% May 9.0% June January 5.0% Short- 7.0% Term 9.6% 9.6% 9.6% 9.6% 9.6% 9.6% Long- Term Required: a. Assuming the company follows the hedging strategy, calculate the TOTAL dollar interest payments for the six months. b. If the company implemented a risky strategy would you expect total dollar interest payments to be higher or lower, briefly explain your auirod)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Hillary's Health Food Store has estimated monthly current asset financing requirements for the next six months as follows:
January
February
March
April
May
June
Current
Assets
Temporary
Permanent
$6,000
$4,000
$1,000
$4,000
$2,000
$4,000
$6,500
$4,000
$5,000
$4,000
$2,000
$4,000
Projected annual borrowing rates for the next six months are:
January
February
6.0%
April
12.0%
May
9.0%
June
7.0%
March
9.0%
Short-
Term
Long-
Term
5.0%
9.6%
9.6%
9.6%
9.6%
9.6%
9.6%
Required:
a. Assuming the company follows the hedging strategy, calculate the TOTAL dollar interest payments for the six months.
b. If the company implemented a risky strategy would you expect total dollar interest payments to be higher or lower, briefly explain your
answer (calculation not required).
Transcribed Image Text:Hillary's Health Food Store has estimated monthly current asset financing requirements for the next six months as follows: January February March April May June Current Assets Temporary Permanent $6,000 $4,000 $1,000 $4,000 $2,000 $4,000 $6,500 $4,000 $5,000 $4,000 $2,000 $4,000 Projected annual borrowing rates for the next six months are: January February 6.0% April 12.0% May 9.0% June 7.0% March 9.0% Short- Term Long- Term 5.0% 9.6% 9.6% 9.6% 9.6% 9.6% 9.6% Required: a. Assuming the company follows the hedging strategy, calculate the TOTAL dollar interest payments for the six months. b. If the company implemented a risky strategy would you expect total dollar interest payments to be higher or lower, briefly explain your answer (calculation not required).
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