Q1- Guardian Inc. is trying to develop an asset-financing plan. The firm has $410,000 in temporary current assets and $310,000 in permanent current assets. Guardian also has $510,000 in fixed assets. Assume a tax rate of 30 percent. a. 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 16 percent on long-term funds and 8 percent on short-term financing. Compute the annual interest payments under each plan.

	Annual Interest
Conservative
Aggressive

b. Given that Guardians earnings before interest and taxes are $290,000, calculate earnings after taxes for each of your alternatives.

	Earning After Taxes
Conservative
Aggressive

c. 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?

	Conservative	Aggressive
Total interest
Earnings after taxes

Q2- Lear Inc. has $870,000 in current assets, $385,000 of which are considered permanent current assets. In addition, the firm has $670,000 invested in fixed assets.

a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8 percent. The balance will be financed with short-term financing, which currently costs 6 percent. Lears earnings before interest and taxes are $270,000. Determine Lears earnings after taxes under this financing plan. The tax rate is 40 percent. Earning after taxes = ?b. As an alternative, Lear might wish to finance all fixed assets and permanent current assets plus half of its temporary current assets with long-term financing and the balance with short-term financing. The same interest rates apply as in part a. Earnings before interest and taxes will be $270,000. What will be Lears earnings after taxes? The tax rate is 40 percent. Earning after taxes = ?