McKinsee Inc. is developing a plan to finance its asset base. The firm has $5,000,000 In...

 

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McKinsee Inc. is developing a plan to finance its asset base. The firm has $5,000,000 In current assets of which 20 % are permanent and $12,000,000 in fixed assets. Long term rates are currently 9.5%, while short term rates are at 7%. McKinsee's tax rate is 30% a) Construct a conservative financing plan with 80% of assets financed by long term sources If McKinsee's earnings before interest and taxes are $6,000,000 what will their net income be? McKinsee's Inc. Financing Plan Current Asset Temporary (80%) Permanent (20%) Total current asset Short term financing Long term financing Fixed Asset Long term financing Total Financing Short term (7%) Long term (9.5 %) McKinsee's Inc. Financing Plant Earnings before interest and taxes Short term interest (7% x 4,000,000 ) Long term interest (9.5 % x 13,000,000) Earnings before tax Taxes (30%) Earnings after tax 4,000,000 1,000,000 5,000,000 4,000,000 1,000,000 5,000,000 $12,000,000 $12,000,000 4,000,000 13,000,000 17,000,000 $ 6,000,000 (280,000) (1,235,000) 4,485,000 (1,345,500 ) 3,139,500 I McKinsee Inc. is developing a plan to finance its asset base. The firm has $5,000,000 In current assets of which 20 % are permanent and $12,000,000 in fixed assets. Long term rates are currently 9.5%, while short term rates are at 7%. McKinsee's tax rate is 30% a) Construct a conservative financing plan with 80% of assets financed by long term sources If McKinsee's earnings before interest and taxes are $6,000,000 what will their net income be? McKinsee's Inc. Financing Plan Current Asset Temporary (80%) Permanent (20%) Total current asset Short term financing Long term financing Fixed Asset Long term financing Total Financing Short term (7%) Long term (9.5 %) McKinsee's Inc. Financing Plant Earnings before interest and taxes Short term interest (7% x 4,000,000 ) Long term interest (9.5 % x 13,000,000) Earnings before tax Taxes (30%) Earnings after tax 4,000,000 1,000,000 5,000,000 4,000,000 1,000,000 5,000,000 $12,000,000 $12,000,000 4,000,000 13,000,000 17,000,000 $ 6,000,000 (280,000) (1,235,000) 4,485,000 (1,345,500 ) 3,139,500 I

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