Find monthly average of permanent monthly funds requirement

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A day camp and sports organization has seasonal funding requirements that run from April through September, and more stable, permanent fund requirements year-round. Funds needed to borrow are forecast for the year as follows:

January $1,500,000

February 1,500,000

March 1,500,000

April 2,500,000

May 3,500,000

June 6,500,000

July 7,500,000

August 9,000,000

September 8,000,000

October 1,500,000

November 1,500,000

December 1,500,000

(A) Determine (1) the monthly average of the permanent monthly funds requirement, and (2) the monthly average of the seasonal monthly funds requirement.

(B) To finance the funds, consider two strategies: an aggressive funding strategy and a conservative funding strategy. Under the aggressive strategy, assume that long-term funds will finance permanent needs and short-term funds will finance seasonal needs. Identify the amount of long-term and short-term financing used to accommodate the total funds requirement using each of the two strategies.

(C) Short-term funds cost 6% annually, and long-term funds cost 10% annually. Use the assumptions in parts A and B to compute the total cost of each strategy described in part B. Assume excess cash balances will earn 2% annually for the firm.

(D) Analyze the profitability versus risk trade-offs with the aggressive strategy versus the conservative strategy.

Reference no: EM132685572

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