Problem $6-14($Algo$)$ Conservative versus aggressive financing $[$LO$6-5]$

Guardian Incorporated is trying to develop an asset$-$financing plan. The firm has $$460,000$ in temporary current assets and $$360,000$ in permanent current assets. Guardian also has $$560,000$ in fixed assets. Assume a tax rate of $25$ percent.

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 $56\mathrm{.}25$ 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.

Given that Guardian$$s earnings before interest and taxes are $$340,000,$ calculate earnings after taxes for each of your alternatives.