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Question $7$

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Question text

Outdoor Adventures Inc. is in a highly seasonal business, and the following summary balance sheet data show its assets and liabilities at peak and off$-$peak seasons $($in thousands of dollars$)$:

Peak

Off$-$Peak

Cash

$ $50$

$ $30$

Marketable securities

$0$

$20$

Accounts receivable

$40$

$20$

Inventories

$100$

$50$

Net fixed assets

$500$

$500$

Total assets

$$690$

$$620$

Spontaneous liabilities

$ $30$

$ $10$

Short$-$term bank debt

$50$

$0$

Long$-$term debt

$300$

$300$

Common equity

$310$

$310$

Total claims

$$690$

$$620$

What can we conclude from this data?

Question $7$Answer

a$.$

Ski Lifts follows a relatively conservative approach to working capital financing; that is$,$ some of its short$-$term needs are met by permanent capital.

b$.$

Ski Lifts$$s working capital financing policy calls for exactly matching asset and liability maturities.

c$.$

Without income statement data, we cannot determine the aggressiveness or conservatism of the company$$s working capital financing policy.

d$.$

Ski Lifts$$s working capital financing policy is relatively aggressive; that is$,$ the company finances some of its permanent assets with short$-$term discretionary debt.