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Problem 6-14 Conservative versus aggressive financing (LO6-5) Guardian Inc is trying to develop an asset financing plan. The firm has $380,000 in temporary current assets
Problem 6-14 Conservative versus aggressive financing (LO6-5) Guardian Inc is trying to develop an asset financing plan. The firm has $380,000 in temporary current assets and $280,000 in permanent current assets. Guardian also has $480,000 in fixed assets. Assume a tax rate of 30 percent o. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 80 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 6 percent on short-term financing Compute the annual interest payments under each plan Answer is complete and correct. Annual Interest Conservative $ 123. 120 Aggressive $ 106,875 b. Given that Guardian's earnings before interest and taxes are $260.000, calculate earnings after taxes for each of your alternatives Answer is complete and correct. Earning After Takes Conservative 95816 Aggressive 107 188 c. What would the annual interest and earnings after taxes for the conservative and aggressive strategies de If the nort-term and long- term interest rates were reversed? Answer is complete but not entirely correct. Conservative Aggressive $ 82.080 $ 141 450 Total Interest IC 124 15
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