FIN 2800 Lecture Notes - Lecture 14: Yield Curve, Inventory Investment, Working Capital

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17 Nov 2016
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Aggressive approach: focus on increasing profit, willing to take more risk, have: younger less risk averse; lots of time to make it up less assets, don"t have liquidity. Short term financing: advantages: lower initial interest cost, disadvantage: rollover risk->constantly refinancing (changing rates, credit is affected) Long term financing: advantages: little to no rollover risk, disadvantage: higher initial interest cost. Term structure interest rates: upsloping yield curve (longer maturities have higher interest rates): tends to occur during an economic expansion, down sloping yield curve (longer maturities have lower interest rates): during economic recessions, hump, flat. Maturity matching strategy: midpoint between the aggressive and conservative approach: finance temporary current assets with short term debt, finance long term assets with long term debt. Take on opportunity cost, risk of loss. Should we offer a discount for early payment: ex: 2/10, net 30. 2% discount if you pay within 10 days.

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