Question: 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 assets.
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 assets. Guardian also has $500,000 in fixed assets. Assume a tax rate of 40%. Construct two alternative financing plans for guardian. One should be conservative with 75% of assets financed by long term sources and the other should be aggressive with only 56.25% of assets financed by long term sources. The current interest rate is 15% on long term funds and 10% on short term financing. Please show your work. B. Given that guardians earnings before interest and taxes are $200,000, calculate earnings after taxes for each of your alternatives. C. What would happen if the short term and long term rates were reversed? Please show work.
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
