Working capital financing policiesthe langey corporation is

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Working Capital Financing Policies

The Langey Corporation is in a seasonal business It requires a permanent base of net working capital of 410 million all year long, but that requirement temporarily increases to $20 million during  four month period each year. Langley has three financing options for net working capital.

a. Finance the peak level year round with equity, which costs 20% and invest temporarily unused funds in marketable securities, which ears 6%.

b. Finance permanent net working capital with equity and temporary net working capital with a short-term loan at 12%.

c. Finance all net working capital needs with short-term debt at 12.5%. Calculate the cost of each option. Which would you choose? Why?

Reference no: EM13381187

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