Dynabase Tool has forecast its total funding requirements for the coming year as shown in the following table:

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.

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