Question
Dynabase Tool has forecast its total funding requirements for the coming year as shown in the following table: LOADING... . a.Divide the firm's monthly funding
Dynabase Tool has forecast its total funding requirements for the coming year as shown in the following table:
LOADING...
.
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.
month amount
january 2000000
Febuary 2000000
march 2000000
april 4000000
May 5000000
June 10000000
july 13000000
auguest 15000000
september 11000000
october 7000000
november 3000000
december 3000000
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