Problem $6-14($Algo$)$ Conservative versus aggressive financing $[$L$06-5]$

Guardian Incorporated is trying to develop an asset$-$financing plan. The firm has $$360,000$ in temporary current assets and $$260,000$ in permanent current assets. Guardian also has $$460,000$ in fixed assets. Assume a tax rate of $40$ percent.

a$.$ Construct two alternative financing plans for Guardian. One of the plans should be conservative, with $60$ 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. Compute the annual interest payments under each plan.

$\backslash$table$[[,$Annual Interest$],[$Conservative$,],[$Aggressive$,]]$

b$.$ Given that Guardian's earnings before interest and taxes are $$240,000,$ calculate earnings after taxes for each of your alternatives.

$\backslash$table$[[,\backslash$table$[[$Earning After$],[$Taxes$]]],[$Conservative$,],[$Aggressive$,]]$

c$.$ What would the annual interest and earnings after taxes for the conservative and aggressive strategies be if the short$-$term and long$-$term interest rates were reversed?

$\backslash$table$[[,$Conservative,Aggressive$],[$Total interest,,$],[$Earnings after taxes,,$]]$