Hicks Health Clubs, Inc., expects to generate an annual EBIT of $512,000 and needs to obtain financing for $1,070,000 of assets. Its tax bracket is 31%. If the firm uses short-term debt, its rate will be 7.5%, and if it uses long-term debt, its rate will be 8.5%. By how much will their earnings after taxes change if they choose the more aggressive financing plan instead of the more conservative plan? (Amounts in parentheses indicate negative value.)

Multiple Choice

• ($7,383)

• ($11,383)

• $7,383

• $11,383