Chapter 6 Problem 14

Guardian Inc is trying to develop an asset financing plan. the firm has $400,000 in temporary current assets and $300,000 in permanent current asset. Guardian also has $500,000 in fixed assets. Assume a tax rate of 40%.

a. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 75 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 15 percent on long term funds and 10 percent on short term financing.

b. Given that guardian's earnings before interest and taxes are $200,000, calculate earnings after taxes for each of your alternatives.

c. What would happen if the short and long term rates were reversed?

Chapter 7 Problem 5

Thompson wood products has credit sales of $2,160,000 and accounts receivable of $288,000. Compute the value of the average collection period.

Chapter 8 Problem 18

If you barrow $5,300 at $400 interest for one year, what is your effective interest rate for the following payment plans?

a. annual payments

b. semiannual payments

c. quarterly payments

d. monthly payments