Use the information below for this assignment. Comfin Company has estimates on i

Question

Use the information below for this assignment. Comfin Company has estimates on its level of current and total assets for the next two years:
Year 201X
Jan
Feb
Mar
Apr
May
June
July
Aug
Sep
Oct
Nov
Dec
Total Assets
$500,000
$475,000
$460,000
$470,000
$475,000
$485,000
$495,000
$555,000
$600,000
$650,000
$700,000
$750,000
Current Assets
$250,000
$220,000
$199,900
$204,698
$204,392
$208,980
$213,459
$262,829
$307,085
$351,227
$395,251
$439,156
Year 201X + 1
Jan
Feb
Mar
Apr
May
June
July
Aug
Sep
Oct
Nov
Dec
Total Assets
$600,000
$570,000
$552,000
$564,000
$570,000
$582,000
$594,000
$660,000
$720,000
$780,000
$840,000
$900,000
Current Assets
$350,000
$350,000
$352,100
$359,302
$365,608
$373,020
$380,541
$397,171
$412,915
$428,773
$444,749
$460,844
a. Estimate the levels of permanent and temporary current assets for Comfin over these months. Find the average amount for fixed assets, permanent current assets, and temporary current assets in the year 201X and year 201X + 1.
b. What average amounts of short-term and long-term financing should Comfin have during each year if it wants to follow a maturity-matching financing strategy over time?
c. What average amounts of short-term and long-term financing should Comfin have during each year if it wants to follow an aggressive financing strategy over time?
d. Suppose Comfin’s cost of short-term funds is 8 percent and its cost of long-term funds is 15 percent. Use your answers in (b) and (c) to compute the cost of each strategy.
e. What are the pro and con arguments toward each strategy in terms of profitability, risk, and company liquidity?

Explanation / Answer

a.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Assets in 201x 500000 475000 460000 470000 475000 485000 495000 555000 600000 650000 700000 750000 Current Assets in 201x 250000 220000 199900 204698 204392 208980 213459 262829 307085 351227 395251 439156 Fixed Assets in 201x 250000 255000 260100 265302 270608 276020 281541 292171 292915 298773 304749 310844 % of permanent current assets 50% 48.89% 43.46% 43.55% 43.03% 43.09% 43.12% 47.36% 51.18% 54.03% 56.46% 58.55% Total Assets in 201x+1 600000 570000 552000 564000 564000 582000 594000 660000 720000 780000 840000 900000 Fixed Assets in 201x+1 150000 120000 199900 204698 198192 208980 213459 262829 307085 351227 395251 439156 Permanent Current Assets in 201x+1 300000 278673 239900 245622 242689 250784 256133 312576 368496 421434 444749 526950 Current Assets in 201x+1 350000 350000 352100 359302 365808 373020 380541 397171 412915 428773 444749 460844 Temporary Current Assets in 201x+1 50000 71327 113100 113680 123119 122236 124408 84595 44419 7339 Nil 66106

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