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

Guardian Incorporated is trying to develop an asset$-$financing plan. The firm has $$370,000$ in temporary current assets and $$270,000$

In permanent current assets. Guardian also has $$470,000$ in fixed assets. Assume a tax rate of $30$ percent.

a$.$ Construct two alternative financing plans for Guardian. One of the plans should be conservative, with $70$ 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 $12$ percent on long$-$term funds and $8$ percent on short$-$term financing. Compute the annual Interest payments

under each plan.

b$.$ Glven that Guardlan's earnings before interest and taxes are $$250,000,$ calculate earnings after taxes for each of your alternatives.

c$.$ What would the annual interest and earnings after taxes for the conservative and aggressive strategles be if the short$-$term and

long$-$term interest rates were reversed?