Guardian Incorporated is trying to develop an asset-financing plan. The firm has $370,000 in temporary current assets and $270,000 in permanent current assets. Guardian also has $470,000 in fixed assets. Assume a tax rate of 30 percent.

1. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 70 percent of assets financed by long-term sources, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sources. The current interest rate is 12 percent on long-term funds and 8 percent on short-term financing. Compute the annual interest payments under each plan.

1. Given that Guardians earnings before interest and taxes are $250,000, calculate earnings after taxes for each of your alternatives.

1. 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?