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Dynabase Tool has forecast its total funds requirement for the coming year as shown in the following

Question

$3,000,000

a) Divide the firms monthly funds requirements into (1) a permanent component and (2) a seasonal component, and find the monthly average for each of those components.

b) Describe the amount of long-term and short-term financing used to meet the total funds requirements 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 funds cost 5% annually and that the cost of long-term funds is 10% annually, use the averages found in part a to calculate the total cost of each strategies describes in part b. Assume that the firms can earn 3% on any excess cash balances.

d) Discuss the profitability-risk tradeoffs associated with the aggressive strategy and those associated with the conservative strategy.

Finance

Dynabase Tool has forecast its total funds requirement for the coming year as shown in the following