Question: Under normal conditions (73% probability), Financing Plan A will produce a $22,000 higher return than Plan B. Under tight money conditions (27% probability), Plan A

Under normal conditions (73% probability), Financing Plan A will produce a $22,000 higher return than Plan B. Under tight money conditions (27% probability), Plan A will produce $35,000 less than Plan B. What is the expected value of return?

Multiple Choice $52,080, $46,270, $6,610, $5,810

Hicks Health Clubs, Incorporated expects to generate an annual EBIT of $515,000 and needs to obtain financing for $1,150,000 of assets. Its tax bracket is 38%. If the firm uses short-term debt, its rate will be 7.0%, and if it uses long-term debt, its rate will be 8.0%. By how much will their earnings after taxes change if they choose the more aggressive financing plan instead of the more conservative plan? Note: Amounts in parentheses indicate negative value. Multiple Choice ($11,130) $7,130 $11,130 ($7,130)

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