If the firms sales are cyclic then its investment in

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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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This document was uploaded on 01/19/2014.

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