Short-term borrowing: When a company borrows for a period of fewer than twelve months, it is termed as long-term financing. For example short-term loan. Long-term financing: When a company borrows for a period of more than twelve months it is termed as long-term financing. Long-term financing is in the form of long-term loan and debentures. Permanent working capital: Permanent working capital is the minimum level of investment that a firm requires in working capital. To maintain continuous operations a firm should keep this minimum amount invested in its short-term assets. Temporary working capital: Temporary working capital is the difference between a firm’s permanent working capital requirement and the firms actual level of investment in the short term. To determine: The amount and period of maximum short-term borrowing if, the company holds $100 cash in each quarter.

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Chapter 20, Problem 5P

Summary Introduction

Short-term borrowing: When a company borrows for a period of fewer than twelve months, it is termed as long-term financing. For example short-term loan.

Long-term financing: When a company borrows for a period of more than twelve months it is termed as long-term financing. Long-term financing is in the form of long-term loan and debentures.

Permanent working capital: Permanent working capital is the minimum level of investment that a firm requires in working capital. To maintain continuous operations a firm should keep this minimum amount invested in its short-term assets.

Temporary working capital: Temporary working capital is the difference between a firm’s permanent working capital requirement and the firms actual level of investment in the short term.

To determine:

The amount and period of maximum short-term borrowing if, the company holds $100 cash in each quarter.

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