Fun House Corp. has $420,000 in assets. It can expect to earn a return of 13% on its assets with a low level of current assets, and 8% with a high level of current assets.

If the firm uses short-term debt to finance its assets, the cost is 4% vs. 5% for long-term debt.

What is the expected return after financing costs if the company uses a high level of current assets financed by long-term debt (most conservative policy)?

What is the expected return after financing costs if the company uses a low level of current assets financed by short-term debt (most aggressive policy)?

Answer rating: 100% (QA)

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