8)

Guardian Inc. is trying to develop an asset-financing plan. The firm has $540,000 in temporary current assets and $440,000 in permanent current assets. Guardian also has $640,000 in fixed assets. Assume a tax rate of 40 percent.(Do not round intermediate calculations. Round your answers to the nearest whole number.)

a.

Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 80 percent of assets financed by long-term sources, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sources. The current interest rate is 14 percent on long-term funds and 8 percent on short-term financing. Compute the annual interest payments under each plan.

	Annual Interest
Conservative	$
Aggressive	$

b.	Given that Guardians earnings before interest and taxes are $420,000, calculate earnings after taxes for each of your alternatives.

	Earnings After Taxes
Conservative	$
Aggressive	$

c.	What would the annual interest and earnings after taxes for the conservative and aggressive strategies be if the short-term and long-term interest rates were reversed?

	Conservative	Aggressive
Total interest	$	$
Earnings after taxes	$	$