0500 total cost of conservative strategy 0 1125000

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Unformatted text preview: inancing 0.0625 Cost of long-term financing 0.0800 Earnings on surplus balances5 0.0500 Total cost of conservative strategy $ 0 1,125,000 888,750 $ 0 90,000.00 44,437.50 $45,562.50 It is clear from these calculations that for Semper, the aggressive strategy is far less expensive than the conservative strategy. However, it is equally clear that Semper has substantial peak-season operating-asset needs and that it must have adequate funding available to meet the peak needs and ensure ongoing operations. Clearly, the aggressive strategy’s heavy reliance on short-term financing makes it riskier than the conservative strategy because of interest rate swings and possible difficulties in obtaining needed short-term financing quickly when sea- 4. Because under this strategy the amount of financing exactly equals the estimated funding need, no surplus balances exist. 5. The average surplus balance would be calculated by subtracting the sum of the permanent need ($135,000) and the average seasonal need ($101,250) from th...
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This document was uploaded on 01/19/2014.

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