1 Use the information below for this assignment. Comfin Company has estimates on
ID: 2774617 • Letter: 1
Question
1
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
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)
Following is the computation of the average of assets for the years 2009 and 2010:
2009 2010 Month Total assets Current assets Total assets Current assets Jan 5,00,000 2,50,000 6,00,000 3,50,000 Feb 4,75,000 2,20,000 5,70,000 3,50,000 Mar 4,60,000 1,99,900 5,52,000 3,52,100 Apr 4,70,000 2,04,698 5,64,000 3,59,302 May 4,75,000 2,04,392 5,70,000 3,65,608 June 4,85,000 2,08,980 5,82,000 3,73,020 Jul 4,95,000 2,13,459 5,94,000 3,80,541 Aug 5,55,000 2,62,829 6,60,000 3,97,171 Sep 6,00,000 3,07,085 7,20,000 4,12,915 Oct 6,50,000 3,51,227 7,80,000 4,28,773 Nov 7,00,000 3,95,251 8,40,000 4,44,749 Dec 7,50,000 4,39,156 9,00,000 460 Total assets 66,15,000 32,56,977 79,32,000 42,14,639 Average assets 5,51,250 2,71,415 6,61,000 3,51,220
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