(Hedging
principle?)
A popular theory for managing risk to the firm that arises outof its management of working capital? (that is, current assets andcurrent? liabilities) involves following something called theprinciple of? self-liquidating debt. How would this principle beapplied in each of the following? situations? Explain yourresponses to each alternative.
a. Longleaf Homes owns a chain of seniorhousing complexes in the? Seattle, Washington, area. The firm ispresently debating whether it should borrow short or long term toraise? $10 million in needed funds. The funds are to be used toexpand the? firm's care? facilities, which are expected to last 20years.
b. Arrow Chemicals needs? $5 million topurchase inventory to support its growing sales volume. Arrow doesnot expect the need for additional inventory to diminish in thefuture.
c. Blocker Building? Materials, Inc. isreviewing its plans for the coming year and expects that during themonths of November through January it will need an additional? $5million to finance the seasonal expansion in inventories andreceivables.
a. Longleaf Homes owns a chain of seniorhousing complexes in the? Seattle, Washington, area. The firm ispresently debating whether it should borrow short or long term toraise? $10 million in needed funds. The funds are to be used toexpand the? firm's care? facilities, which are expected to last 20years.
In this? case, Longleaf Homes should use
?
Short-term (temporary)
Long-term
Permanent
source of financing for its expansion.???(Select from the?drop-down menu.)
b. Arrow Chemicals needs? $5 million topurchase inventory to support its growing sales volume. Arrow doesnot expect the need for additional inventory to diminish in thefuture.
In this? case, Arrow Chemicals should use
?
short-term (temporary)
permanent
long-term
source of financing for its expansion.???(Select from the?drop-down menu.)
c. Blocker Building? Materials, Inc. isreviewing its plans for the coming year and expects that during themonths of November through January it will need an additional? $5million to finance the seasonal expansion in inventories andreceivables.
In this? case, Blocker Building Materials should use
?
long-term
permanent
short-term (temporary)
source of financing for its expansion.???(Select from the?drop-down menu.)
