Dynabase Tool has forecast its total funds requirements for the

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


a. Divide the firm’s monthly funds 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 funds cost 12% annually and that the cost of long term funds is 17% annually, use the averages found in part a to calculate the total cost of each of the strategies described in part b.
d. Discuss the profitability–risk trade-offs associated with the aggressive strategy and those associated with the conservativestrategy.

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  • CreatedMarch 05, 2012
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