Answer to Question #7080 in Finance for LaMarcus Streeter

Question #7080
1. Swim Suits Unlimited is in a highly seasonal business, and the following summary balance sheet data show its assets and liabilities at peak and off-peak seasons (in thousands of dollars): Peak Off-Peak Cash $ 50 $ 30 Marketable securities 0 20 Accounts receivable 40 20 Inventories 100 50 Net fixed assets 500 500 Total assets $690 $620 Payables and accruals $ 30 $ 10 Short-term bank debt 50 0 Long-term debt 300 300 Common equity 310 310 Total claims $690 $620 From this data we may conclude that a. Swim Suits' current asset financing policy calls for exactly matching asset and liability maturities. b. Swim Suits' current asset financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt. c. Swim Suits follows a relatively conservative approach to current asset financing; that is, some of its short-term needs are met by permanent capital. d. Without income statement data, we cannot determine the aggressiveness or conservatism of the c
Expert's answer
The right answer is
a. Swim Suits' current asset financing policy calls for
exactly matching asset and liability maturities.
Explanation.

That's because Swim Suits' permanent capital exactly matches all its
long-term needs ($610,000), and company finances all its short-term assets
($70,000) only with short-term discretionary debt.

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