Swim Suits Unlimited Is in a Highly Seasonal Business, and the Following

question 100

Multiple Choice

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) : $\begin{array}{lcc}&\underline{\text { Peak }} &\underline {\text { Off-Peak } }\\\text {Cash}&\$50&\$30\\\text {Marketable securities}&0 & 20 \\\text {Accounts receivable}&40 & 20 \\\text {Inventories}&100 & 50 \\\text {Net fixed assets}& \underline{00} & \underline{500} \\ \text {Total assets}&\underline{\underline{\$ 690}} & \underline{\$ 620}\\\\\text {Payables and accruals}&\$ 30 & \$ 10 \\\text {Short-term bank debt}&50 & 0 \\\text {Long-term debt}&300 & 300 \\\text {Common equity}& \underline{310}& \underline{310} \\\text {Total claims}&\underline{\underline{\$ 620}}&\underline{\underline{\$ 620}}\end{array}$
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 company's current asset financing policy.
• E) Without cash flow data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.

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Definitions:

Bill of Exchange

A written, unconditional order by one party directing another party to pay a specific sum of money to a third party on demand or at a set time.

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