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Kit Question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Kit Question

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • Author
    Posts
  • August 28, 2022 at 2:16 pm #664514
    James124
    Participant
    • Topics: 166
    • Replies: 138
    • ☆☆☆

    Two companies, Acacia and Birch, have the following average levels of working capital:

    Working capital level ($m)
    Max
    Min

    Acacia
    10
    6

    Birch
    12
    9

    Acacia’s working capital is financed with $4m of long-term debt and Birch’s working capital is financed with $9m of long-term c

    The balance of finance is from short-term sources.

    Identify, by clicking on the relevant boxes in the table, which type of working capital funding strategy each company is employing.

    Acacia’s working capital funding strategy is aggresive, matching or conservative?

    Birch’s working capital funding strategy is aggresive, matching or conservative?

    Answer is Aggressive (for Acacia) and Matching (for Birch).

    Can you help me with this question? I do not understand

    August 28, 2022 at 3:49 pm #664527
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 53175
    • ☆☆☆☆☆

    In which kit did you find this question (and are you sure you have typed out the whole question correctly)?

    I ask because it is rather strange as it appears because the maximum and minimum levels are not average levels 🙂

    Acacia’s policy is aggressive because the long term working capital is greater than the long-term borrowing, which means that the extra is being financed by short-term borrowing which is more risky and more aggressive.

    Birch is matching because the long-term working capital is always financed (‘matched’) but the long-term borrowing.

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    Posts
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