Westwood Ltd. has projected its working capital for the next 12 months as follows:
The cost of short-term and long -term funds per annum is projected at 20% and 25% respectively during the same period.
(a) Prepare a schedule showing the amount of permanent and seasonal funds requirements each month. (12 marks)
(b) What is the average amount of long-term and short-term financing that will be required each month? (2 marks)
(c) Calculate the total cost of working capital financing if the firm adopts:
(i) An aggregate financing strategy
(ii) A conservative financing strategy.
(a) The minimum amount of working capital represents permanent working capital. Any amount in excess of this represents temporary/seasonal/variable working capital.
(c) Aggressive policy involves the use of short term financing for total working capital.