A flexible policy would finance $80,000 with long-term debt and have excess cash of $10,000 to invest in marketable securities in January, March and…

A flexible policy would finance $80,000 with long-term debt and have excess cash of $10,000 to invest in marketable securities in January, March and April. Overall, the interest expense on the extra $10,000 borrowed long-term will outweigh the interest received from the marketable securities.A restrictive policy would finance $70,000 with long-term debt. In February, the firm would borrow $10,000 on a short-term basis to cover the cost of temporary assets in that month. The short-term loan would be repaid in March.

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