9-3040 2010 WC POLICY & ST-FINANCING

9-3040 2010 WC POLICY & ST-FINANCING - WORKING...

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WORKING CAPITAL POLICY
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WORKING CAPITAL POLICY The Risk and Return Tradeoff Maximize Profit Minimize Risk Investment policy Long-term Short-term 1. Long-term investments are more profitable but not liquid 2. Short-term are more liquid but have little or no profit
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WORKING CAPITAL POLICY The Risk and Return Tradeoff Maximize Profit Minimize Risk Investment policy Long-term Short-term Financing policy Short-term Long-term 1. Long-term investments are more profitable but not liquid 2. Short-term are more liquid but have little or no profit 1. Short-term debt is less costly but short maturity is risky 2. Long-term financing is more costly but longer debt maturity and no equity maturity is less risky
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23 $ million Time Fixed assets 14 12 16 20 Permanent level of current assets Fluctuating current assets Long-term cash needs $16 Short-term cash needs $0 to $7
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Long-term financing Matching $16 million Long-term cash requirements are financed with long-term capital sources, short-term needs are financed with short- term sources. 23 $ million Time Fixed assets 14 12 16 20 Permanent level of current assets Fluctuating current assets
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1. Your company has fixed assets of $75 million with current assets that fluctuate throughout the year between $12 and $40 million. a.If your firm follows a matching financing policy, determine the amount of long-term financing it will require.
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Your company has fixed assets of $75 million with current assets that fluctuate throughout the year between $12 and $40 million. b. Will a conservative financing policy be more or
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This note was uploaded on 02/16/2011 for the course FIN 304 taught by Professor S during the Spring '11 term at Toledo.

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9-3040 2010 WC POLICY & ST-FINANCING - WORKING...

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