9 Guardian Incorporated is trying to develop an asset-financing plan. The firm has $370,000 in temporary current assets and $270,000 in permanent current assets. Guardian also has $470,000 in fixed assets. Assume a tax rate of 30 percent Check my w 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 12 percent on long-term funds and 8 percent on short-term financing. Compute the annual interest payments under each plan. -Book Annual Interest Hint Print Conservative Aggressive $ $ 97,440 83,363 erences b. Given that Guardian's earnings before interest and taxes are $250,000, calculate earnings after taxes for each of your alternatives. Conservative Earning After Taxes Annressive Prev 9 of 14

9 Guardian Incorporated is trying to develop an asset-financing plan. The firm has $370,000 in temporary current assets and $270,000 in permanent current assets. Guardian also has $470,000 in fixed assets. Assume a tax rate of 30 percent Check my w 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 12 percent on long-term funds and 8 percent on short-term financing. Compute the annual interest payments under each plan. -Book Annual Interest Hint Print Conservative Aggressive $ $ 97,440 83,363 erences b. Given that Guardian's earnings before interest and taxes are $250,000, calculate earnings after taxes for each of your alternatives. Conservative Earning After Taxes Annressive Prev 9 of 14

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 21P: Your division is considering two investment projects, each of which requires an up-front expenditure...

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Guardian Incorporated is trying to develop an asset-financing plan. The firm has $390,000 in temporary current assets and $290,000 in permanent current assets. Guardian also has $490,000 in fixed assets. Assume a tax rate of 40 percent. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 90 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 8 percent on short-term financing. Compute the annual interest payments under each plan. Given that Guardian’s earnings before interest and taxes are $270,000, calculate earnings after taxes for each of your alternatives. 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?
14. Collins Systems, Inc., is trying to develop an asset-financing plan. The firm has $300,000 in temporary current assets and $200,000 in permanent current assets. Collins also has $400,000 in fixed assets. a) Construct two alternative financing plans for the firm. One of the plans should be conservative, with 80 percent of assets financed by long-term sources and the rest financed by short-term sources. The other plan should be aggressive, with only 30 percent of assets financed by long- term sources and the remaining assets financed by short-term sources. The current interest rate is 15 percent on long-term funds and 10 percent on short-term financing. Compute the annual interest payments under each plan. b. Given that Collins's earnings before interest and taxes are $180,000, calcu- late earnings after taxes for each of your alternatives. Assume a tax rate of 40 percent.
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please do it an most easy way. Do step by step. Don't just give me answers cause that wouldn't be fair. Thanks. Subject: Corporate Finance
Your division is considering two investment projects, each of which requires an up-front expenditure of 25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): a. What is the regular payback period for each of the projects? b. What is the discounted payback period for each of the projects? c. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake? d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? f. What is the crossover rate? g. If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?
A Garry Manufacturing Company is considering a three-year project that has a cost of $75,000. The project will generate after-tax cash flows of $33,100 in Year 1, $31,500 in Year 2, and $31,200 in Year 3. Assume that the firm's proper rate of discount is 10% and that the firm's tax rate is 40%. What is the project's payback and outline any limitations in using the payback period method in selecting acceptable projects? Tetious Dimensions is introducing a new product that is expected to increase it net operating income by $775,000. Tetious Dimensions has a 21% marginal tax rate. This project will also produce $200,000 of depreciation per year. In addition, this project will cause the following changes: Without the Project With the Project Accounts Receivable $55,000 $89,000 Inventory $100,000…
Orchard Farms has a pretax cost of debt of 7.68 percent and a cost of equity of 15.2 percent. The firm uses the subjective approach to determine project discount rates. Currently, the firm is considering a project to which it has assigned an adjustment factor of -0.5 percent. The firm's tax rate is 34 percent and its debt-equity ratio is 0.45. The project has an initial cost of $4.3 million and produces cash inflows of $1.27 million a year for 5 years. What is the net present value of the project
Garry Manufacturing Company is considering a three-year project that has a cost of $75,000. The project will generate after-tax cash flows of $33,100 in Year 1, $31,500 in Year 2, and $31,200 in Year 3. Assume that the firm's proper rate of discount is 10% and that the firm's tax rate is 40%. What is the project's payback and outline any limitations in using the payback period method in selecting acceptable projects?
CIP Co, a telecommunications company, is considering an investment of $150 million into a wind farm. The wind farm is expected to generate after-tax cash flows of $75 million in Year 1, $120 million in Year 2, and $175 million in Year 3. CIP Co’s WACC is 12% but some members of management believe the project should be assessed using a discount rate of 15% (which is what Major Bank Ltd advises is a typical discount rate for a wind farm project). The company has spent $15 million up to today researching this opportunity. What is NPV?
ABC Industries is considering a 3-year project that will cost $200 today followed by free cash flows to firm of $100 in year 1, $80 in year 2, and $160 in year 3. ABC has $1000 of assets with a debt ratio of 40.00%. ABC's before-tax cost of debt is 7.00% and its cost of equity is 12.00%. Suppose ABC pays a fee of$6 to the investment bankers who help them to raise the $120 Debt capital. Assuming the tax rate is 35.00% and that the flotation cost can be amortized (i.e. deducted) for tax purposes over the 3 year life of the project. The NPV of the project using the APV method, taking into account the flotation costs, is closest to: $8.40 $11.34 $10.66 $7.72
Cousins Corporation is considering whether to pursue an aggressive or conservative current asset policy, as well as an aggressive or conservative financing policy. The following information is available: Annual sales are $80,000,000. Fixed assets are $40,000,000. The debt ratio is 40 percent. EBIT is $8,000,000. Tax rate is 25 percent. With an aggressive policy, current assets will be 30 percent of sales; with a conservative policy, current assets will be 70 percent of sales. With an aggressive financing policy, short-term debt will be 40 percent of the total debt; with a conservative financing policy, short-term debt will be 15 percent of the total debt. Interest rate for short-term debt is 10 percent. Interest rate for long-term debt is 14 percent. Required: Determine the return on equity for the aggressive approach and for the conservative approach. Discuss which approach you would choose.