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A financial manager is considering two possible sources of funds necessary to finance a $10,000,000 investment that will yield $1,500,000 before interest and taxes. Alternative
A financial manager is considering two possible sources of funds necessary to finance a $10,000,000 investment that will yield $1,500,000 before interest and taxes. Alternative one is a short-term commercial bank loan with an interest rate of 8 percent for one year. The alternative is a five-year term loan with an interest rate of 10 percent. The firm's income tax rate is 30 percent. a. What will be the firm's projected earnings under each alternative for the first year? b. What are the crucial considerations when selecting between short- and long-term sources of finance? 2
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