Guardian Inc. is trying to develop an asset-financing plan. The firm has $460,000 in temporary...
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Guardian Inc. is trying to develop an asset-financing plan. The firm has $460,000 in temporary current assets and $360,000 in permanent current assets. Guardian also has $560,000 in fixed assets. Assume a tax rate of 25 percent. a. 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 14 percent on long-term funds and 8 percent on short-term financing. Compute the annual interest payments under each plan. Conservative Aggressive Annual Interest $ 176,640 $ 156,975 b. Given that Guardian's earnings before interest and taxes are $340,000, 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
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