Question
Guardian inc is trying to develop an asset financing plan . The firm has $400,000 in temporary current assets and $300,000 in permanent current assets.
Guardian inc is trying to develop an asset financing plan . The firm has $400,000 in temporary current assets and $300,000 in permanent current assets. Guardian also has $500,000 in fixed assets. Assume a tax rate of 40%. Construct two alternative financing plans for guardian. One should be conservative with 75% of assets financed by long term sources and the other should be aggressive with only 56.25% of assets financed by long term sources. The current interest rate is 15% on long term funds and 10% on short term financing. Please show your work. B. Given that guardians earnings before interest and taxes are $200,000, calculate earnings after taxes for each of your alternatives. C. What would happen if the short term and long term rates were reversed? Please show work.
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