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1. Blueness Industries has forecasted its monthly needs for working capital (net of spontaneous sources, such as accounts payable) for 2021 as follows: Month Amount Month Amount January $ 375,000 July $365,000 February 380,000 August 370,000 March 385,000 September 360,000 April 400,000 October 350,000 May 390,000 November 360,000 June 375,000 December 365.000 Short-term borrowing (that is, a bank line of credit) costs the company 3 percent annually and intermediate-term borrowing (that is, term loans) costs the company 6 percent annually. Any funds in excess of its monthly needs can be invested in interest-bearing marketable securities to yield 1 percent per annum. a. Divide the firm's monthly funds requirement into (1) a permanent component and (2) a temporary component, and find the monthly average for each of these components. b. Suppose the company follows an aggressive policy by financing all its working capital requirements for the year with short-term borrowing. Determine Blueness's interest costs during 2021 under this policy c. Suppose the firm uses the maturity matching principle by financing all of its permanent needs with long-term financing and its temporary needs with short-term financing. Determine the firm's interest costs under this policy. d. Suppose the fim follows a radical conservative policy by financing the maximum amount of its working capital requirements for the year with long-term borrowing and investing any excess funds in short-term marketable securities. Determine Blueness's net interest costs during 2021 under this strategy e. Determine the profitability versus risk trade-offs associated with these aggressive, moderate and conservative working capital financing policies. 2. Fountain Systems, Inc. has annual credit sales of $60,000,000. Its cost of sales equals 70 percent of sales and the company keeps $10.500,000 of inventory on average. The firm's average level of accounts receivable is 87,200,000. The firm makes all resource purchases on credit. Its trade credit terms are net 42 days, and it consistently makes payments in exactly that amount of time a. What is the fimm's cash conversion cycle? b. The firm's managers are searching for ways to reduce the cash conversion cycle. If sales can be maintained at existing levels, but inventory can be lowered by $900.000 and accounts receivable lowered by $400,000, what will be the net change in the cash conversion cycle? Assume a 365-day year. c. Cite one consequence of the firm's working capital investment decision in part (b). 1. Blueness Industries has forecasted its monthly needs for working capital (net of spontaneous sources, such as accounts payable) for 2021 as follows: Month Amount Month Amount January $ 375,000 July $365,000 February 380,000 August 370,000 March 385,000 September 360,000 April 400,000 October 350,000 May 390,000 November 360,000 June 375,000 December 365.000 Short-term borrowing (that is, a bank line of credit) costs the company 3 percent annually and intermediate-term borrowing (that is, term loans) costs the company 6 percent annually. Any funds in excess of its monthly needs can be invested in interest-bearing marketable securities to yield 1 percent per annum. a. Divide the firm's monthly funds requirement into (1) a permanent component and (2) a temporary component, and find the monthly average for each of these components. b. Suppose the company follows an aggressive policy by financing all its working capital requirements for the year with short-term borrowing. Determine Blueness's interest costs during 2021 under this policy c. Suppose the firm uses the maturity matching principle by financing all of its permanent needs with long-term financing and its temporary needs with short-term financing. Determine the firm's interest costs under this policy. d. Suppose the fim follows a radical conservative policy by financing the maximum amount of its working capital requirements for the year with long-term borrowing and investing any excess funds in short-term marketable securities. Determine Blueness's net interest costs during 2021 under this strategy e. Determine the profitability versus risk trade-offs associated with these aggressive, moderate and conservative working capital financing policies. 2. Fountain Systems, Inc. has annual credit sales of $60,000,000. Its cost of sales equals 70 percent of sales and the company keeps $10.500,000 of inventory on average. The firm's average level of accounts receivable is 87,200,000. The firm makes all resource purchases on credit. Its trade credit terms are net 42 days, and it consistently makes payments in exactly that amount of time a. What is the fimm's cash conversion cycle? b. The firm's managers are searching for ways to reduce the cash conversion cycle. If sales can be maintained at existing levels, but inventory can be lowered by $900.000 and accounts receivable lowered by $400,000, what will be the net change in the cash conversion cycle? Assume a 365-day year. c. Cite one consequence of the firm's working capital investment decision in part (b)

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