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Hicks Health Clubs, Inc., expects to generate an annual EBIT of $504,000 and needs to obtain financing for $1,030,000 of assets. Its tax bracket is
Hicks Health Clubs, Inc., expects to generate an annual EBIT of $504,000 and needs to obtain financing for $1,030,000 of assets. Its tax bracket is 31%. If the firm uses short-term debt, its rate will be 7.0%, and if it uses long-term debt, its rate will be 8.0%. 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.)
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