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Unformatted text preview: ssets should also
be constant, and the firm will have only a permanent funding requirement. If the
firm’s sales are cyclic, then its investment in operating assets will vary over time CHAPTER 14 Nicholson Company holds, on average, $50,000 in cash and marketable securities, $1,250,000 in inventory, and $750,000 in accounts receivable. Nicholson’s
business is very stable over time, so its operating assets can be viewed as permanent. In addition, Nicholson’s accounts payable of $425,000 are stable over time.
Thus Nicholson has a permanent investment in operating assets of $1,625,000
($50,000 $1,250,0000 $750,000 $425,000). That amount would also
equal its permanent funding requirement.
In contrast, Semper Pump Company, which produces bicycle pumps, has seasonal funding needs. Semper has seasonal sales, with its peak sales driven by the
summertime purchases of bicycle pumps. Semper holds, at minimum, $25,000 in
cash and marketable securities, $100,000 in inventory, and $60,000 in accounts
receivable. At peak...
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