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Hicks Health Clubs, Inc., expects to generate an annual EBIT of $502,000 and needs to obtain...

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Finance

Hicks Health Clubs, Inc., expects to generate an annual EBIT of$502,000 and needs to obtain financing for $1,140,000 of assets.Its tax bracket is 39%. If the firm uses short-term debt, its ratewill be 8.0%, and if it uses long-term debt, its rate will be 9.0%.By how much will their earnings after taxes change if they choosethe more aggressive financing plan instead of the more conservativeplan? (Amounts in parentheses indicate negativevalue.)

Multiple Choice

  • $11,954

  • ($11,954)

  • ($6,954)

  • $6,954

Answer & Explanation Solved by verified expert
4.0 Ratings (426 Votes)
i Net earnings if conservative plan ie Short term debt 8 Net earnings EBIT Interest 1 Tax rate Here EBIT 502000 Interest Financing amount Interest rate Interest    See Answer
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Transcribed Image Text

Hicks Health Clubs, Inc., expects to generate an annual EBIT of$502,000 and needs to obtain financing for $1,140,000 of assets.Its tax bracket is 39%. If the firm uses short-term debt, its ratewill be 8.0%, and if it uses long-term debt, its rate will be 9.0%.By how much will their earnings after taxes change if they choosethe more aggressive financing plan instead of the more conservativeplan? (Amounts in parentheses indicate negativevalue.)Multiple Choice$11,954($11,954)($6,954)$6,954

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