# B the firms permanent funds requirement is 500000

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(b)The firm’s permanent funds requirement is \$500,000.Calculate financing costs for the first six months using the aggressive and conservative strategies.
632GitmanPrinciples of Finance,Eleventh EditionAnswer:Average monthly seasonal funds requirement:\$9,824,000/6=\$1,637,333Aggressive strategy:\$1,637,333 (0.11/2)=\$ 90,053500,000 (0.13/2)=32,500\$122,553Conservative strategy:\$2,500,000 (0.13/2)=\$162,500Level of Difficulty: 4Learning Goal: 2Topic: Aggressive versus Conservative Financing Strategy7.Tim’s Sons Company is interested in making sure they have enough money to finance their assets.The company’s current assets and fixed assets for the months ofJanuary through December aregiven in the following table.MonthCurrent AssetsFixed AssetsTotal AssetsJanuary\$60,000\$70,000\$130,000February58,00070,000128,000March55,00070,000125,000April47,00070,000117,000May40,00070,000110,000June41,00070,000111,000July40,00070,000110,000August37,00070,000107,000September38,00070,000108,000October33,00070,000103,000November40,00070,000110,000December50,00070,000120,000(a) Find the average monthly seasonal and permanent funds requirement.(b) What is the total cost of financing under the aggressive and conservative strategies. Assumeshort-term funds costs 4.5 percent and the interest rate for long-term funds is 12 percent.(c) Find the net working capital under the aggressive and conservative strategies.
Chapter 14Working Capital and Current Assets Management633Answers:MonthCurrentAssetsFixedAssetsTotalAssetsPermanentRequirementSeasonalRequirementJanuary\$60,000\$70,000\$130,000\$103,000\$27,000February58,00070,000128,000\$103,00025,000March55,00070,000125,000\$103,00022,000April47,00070,000117,000\$103,00014,000May40,00070,000110,000\$103,0007,000June41,00070,000111,000\$103,0008,000July40,00070,000110,000\$103,0007,000August37,00070,000107,000\$103,0004,000September38,00070,000108,000\$103,0005,000October33,00070,000103,000\$103,0000November40,00070,000110,000\$103,0007,000December50,00070,000120,000\$103,00017,000\$143,000(a) Monthly permanent requirement=\$103,000Average seasonal requirement=143,000/12=\$11,916.67(b) Aggressive:Total costs=11,916.670.045+103,0000.12=\$12,896.25Conservative:Total costs=103,0000.12=\$15,600(c) Net Working Capital:Aggressive Strategy: \$33,000Conservative Strategy: \$60,000Level of Difficulty: 4Learning Goal: 2Topic: Aggressive versus Conservative Financing Strategy8.Sansatrip Products has ten different items in its finished goods inventory. The average number ofunits held in inventory and the average unit cost are listed for each item. The firm uses an ABCsystem of inventory control.ItemAverage Numberof Units in InventoryAverage CostPer Unit13,000\$1.50250010.0034,00012.0045040.00510,0005.00634015.0071,5003.00846030.0092,50025.00103904.10
634GitmanPrinciples of Finance,Eleventh Edition(a) Which items should be considered to be in the A category of an ABC system of inventory?(b) Which items should be considered to be in the B category of an ABC system of inventory?Answers:ItemAverage CostPer UnitAverage Numberof Units in InventoryAverageInvestment1\$1.503,000\$ 4,500210.005005,000312.004,00048,000440.00502,00055.0010,00050,000615.003405,10073.001,5004,500830.0046013,800925.002,50062,500104.103901,599Total\$196,999(a)Items 3, 5, and 9 should be considered in the A category.(b) Item 10 clearly belongs to the C category. All the rest of the inventory items haveabout an equal investment and most likely belong in the B category.

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Current Assets Management