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Table 1 Month January February March April May June July August September October November December Ace Business Forms Current Fixed Assets Assets $125,000 $250,000 130,000 250,000 135,000 250,000 150,000 250,000 150,000 250,000 125,000 250,000 115,000 250,000 120,000 250,000 115,000 250,000 100,000 250,000 110,000 250,000 115,000 250,000 Total Assets $375,000 380,000 385,000 400,000 400,000 375,000 365,000 370,000 370,000 350,000 365,000 Ace Business Forms Current Fixed Total Month Assets Assets Assets January $125,000 $250,000 $375,000 February 130,000 250,000 380,000 March 135,000 250,000 385,000 April 150,000 250,000 400,000 May 150,000 250,000 400,000 June 125,000 250,000 375,000 July 115,000 250,000 365,000 August 120,000 250,000 370,000 September 115,000 250,000 370,000 October 100,000 250,000 350,000 November 110,000 250,000 360,000 December 115,000 250,000 365,000 Ace's Business Forms pays 8 percent on short- term funds and 10 percent on long-term funds. Determine its annual financing costs using the trade-off strategy described: Ace's Business Forms has seasonal financing requirements ranging from zero to $50,000 per month. Based on this range, the firm has decided to finance $25,000 per month of the seasonal funds with long-term debt and the rest of the seasonal funds with short-term debt. The permanent funds requirement will be financed with long- term funds. (See Table 1)

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