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Online Inc. is developing a plan to finance its new asset base. The firm has $3,000,000 in current assets, of which 50% are permanent, and
Online Inc. is developing a plan to finance its new asset base. The firm has $3,000,000 in current assets, of which 50% are permanent, and $6,000,000 in capital assets. Long-term rates are currently 9.5%, while short-term rates are at 7% The tax rate is 30%. Earnings before interest and tax is currently 4,000,000 Required: a) Construct a financing plan, determining Net Income under each of the following options: i) Plan A: All capital assets and 80% of permanent assets by long- term sources. Remaining assets will require short term financing. ii) Plan B: 40% of total assets with long-term financing. Remaining assets will require short term financing. b) If interest rates were expected to increase, which plan would you recommend? Why
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