# 12 & 13 please! :)

and there were 20,000 shares outstanding? e. Now assume the most conservative asset-financing mix described in part b will be utilized. The tax rate will be 30 percent. Also assume there will only be 5,000 shares outstanding. What will earnings per share be? Would it be higher or lower than the earnings per share computed for the most aggres- sive plan computed in part d? 12. Winfrey Diet Food Corp. has $4,500,000 in assets. *********** Temporary current assets Permanent current assets Fixed assets $1,000,000 1,500,000 ********** 2,000,000 Total assets $4,500,000 Short-term rates are 8 percent. Long-term rates are 13 percent. Earnings before interest and taxes are $960,000. The tax rate is 40 percent. If long-term financing is perfectly matched (synchronized) with long-term asset needs, and the same is true of short-term financing, what will earnings after taxes be? For an example of perfectly matched plans, see Figure 6-5 on page 168. 13. In Problem 12, assume the term structure of interest rates becomes inverted, with short-term rates going to 12 percent and long-term rates 4 percentage points lower than short-term rates. Impact of term structure of interest rates on financing plans (L04) If all other factors in the problem remain unchanged, what will earnings after taxes be? 2 14. Collins Systems, Inc., is trying to develop an asset-financing plan. The firm has $300,000 in temporary current assets and $200,000 in permanent current assets. Collins also has $400,000 in fixed assets. Conservative versus aggressive financing (LOS) a. Construct two alternative financing plans for the firm. One of the plans should be conservative, with 80 percent of assets financed by long-term sources and the rest financed by short-term sources. The other plan should be aggressive, with only 30 percent of assets financed by long- Matching asset mix and financing plans (L03)