Question 1

i) Which of the methods of short-term financing would be most likely to be used by the following? Explain your reasoning.

a. A raw-materials processor, such as a mining or lumber company (4 marks)

b. A retail sales concern, such as an appliance retailer or stereo equipment dealer (4 marks)

c . An international company (4 marks)

d. A dealer in consumer durable goods, such as an automobile sales agency (4 marks)

ii) What are advantages and disadvantages of short-term versus long term debt? (9 marks)

Question 3

i) What does it mean to adopt a maturity matching approach to financing assets, including current assets? How would a more aggressive or a more conservative approach differ from the maturity matching approach, and how would each affect expected profits and risk? In general, is one approach better than the others? (18 marks)

ii) Under what conditions would it be possible for a company to hold no cash or marketable securities? Are these conditions realistic? (7 marks)

question 4

ia) Major Electronics sells 85,000 personal stereos each year at a price per unit of $55. All sales are on credit; the terms are 3/15, net 40. The discount is taken by 40 percent of the customers. What is the investment in accounts receivable?(10 marks)

b) In reaction to a competitor, Major Electronics is considering changing its credit terms to 5/15, net 40, to preserve its sales level. Describe qualitatively how this policy change will affect the companys investment in accounts receivable (8 marks)

ii) What are the reasons for holding cash? (7 marks)