Dynabase Tool has forecast its total funds requirements for the coming year as shown in the following table. Month Amount January $2,000,000 February 2,000,000 March 2,000,000 April 4,000,000 May 6,000,000 June 9,000,000 July 12,000,000 August 14,000,000 September 9,000,000 October 5,000,000 November 4,000,000 December 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. Discuss the profitability–risk trade-offs associated with the aggressive strategy and those associated with the conservative strategy.
Dynabase Tool has
Month Amount
January $2,000,000
February 2,000,000
March 2,000,000
April 4,000,000
May 6,000,000
June 9,000,000
July 12,000,000
August 14,000,000
September 9,000,000
October 5,000,000
November 4,000,000
December 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. Discuss the profitability–risk trade-offs associated with the aggressive strategy and those associated with the conservative strategy.
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