- P15-4 Aggressive versus conservative seasonal funding strategy Dynabase Tool has fore- cast its total...
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- P15-4 Aggressive versus conservative seasonal funding strategy Dynabase Tool has fore- cast its total funds requirements for the coming year as shown in the following table. Month Amount Amount January February March April May June $2,000,000 2,000,000 2,000,000 4,000,000 6,000,000 9,000,000 Month July August September October November December $12,000,000 14,000,000 9,000,000 5,000,000 4,000,000 3,000,000 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 and those associated with the conservative strategy
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