Guardian Inc. is trying to develop an asset- financing plan. The firm has $450,000 in temporary current assets and $350,000 in permanent current assets. Guardian also has $550,000 in fixed assets. Assume a tax rate of 40 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 12 percent on long-term funds and 7 percent on short-term financing. Compute the annual interest payments under each plan.
Guardian Inc. is trying to develop an asset- financing plan. The firm has $450,000 in temporary current assets and $350,000 in permanent current assets. Guardian also has $550,000 in fixed assets. Assume a tax rate of 40 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 12 percent on long-term funds and 7 percent on short-term financing. Compute the annual interest payments under each plan.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Guardian Inc. is trying to develop an asset-
financing plan. The firm has $450,000 in
temporary current assets and $350,000 in
permanent current assets. Guardian also has
$550,000 in fixed assets. Assume a tax rate of
40 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 12 percent on long-term
funds and 7 percent on short-term financing.
Compute the annual interest payments under
each plan.
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