Working Capital and Current Assets
Boeing Aircraft LLP, a manufacturer of rubber-band powered drones, forecasts total fund requirements for the next calendar year as follows:
January $1 million July $6 million
February $1 million August $7 million
March $1 million September $4.5 million
April $2 million October $2.5 million
May $3 million November $2 million
June $4.5 million December $1.5 million
A. What is the permanent component of the monthly funds requirement, and its monthly average
B. What is the seasonal component of the monthly funds requirement, and its monthly average.
C. What would the amounts of long- and short-term financing be to meet total funds requirements under (1) an aggressive funding strategy and (2) a conservative funding strategy.
D. If short-term funds cost 3% annually, and long-term funds cost 6% annually, use these averages to calculate the total cost of each of the strategies shown in (b). Assume firms can earn 2% on any excess cash balance.
E. What is the profitability-risk tradeoffs associated with an aggressive vs. conservative total funding strategy?