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 $40$ percent.

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 $56\mathrm{.}25$ 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.

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

What would happen if the short$-$ and long$-$term rates were reversed?