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P14-4 Aggressive versus conservative seasonal funding strategy Dynabase Tool has ca st its total funds requirements for the coming year as shown in the following table. Month Amount Month Amount January February March April May June $12,000,000 $2,000,000 2,000,000 2,000,000 4,000,000 6,000,000 9,000,000 July August September October November December 14,000,000 9,000,000 5,000,000 4,000,000 3,000,000 Divide the firm's monthly funds requirement into (1) a permanent component and (2) a seasonal component, and find the monthly average for each of these components. a. b. Describe the amount of long-term and short-term financing used to meet the to- tal funds requirement under (1) an aggressive funding strategy and (2) a conser- vative funding strategy. Assume that, under the aggressive strategy, long-term funds finance permanent needs and short-term funds are used to finance seasonal needs. Assuming that short-terrm funds cost 5% annually and that the cost of long-term c. funds is 10% annually, use the averages found in part a to calculate the total cost of each of the strategies described in part b. Assume that the firm can earn 3% on any excess cash balances. d. Discuss the profitability-risk trade-offs associated with the aggressive strategy and those associated with the conservative strategy

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