Question

Spieth's Clubs, Inc., has $10,000,000 in assets. If it goes with a low liquidity plan for the assets, it can earn a return of 15 percent, but with a high liquidity plan, the return will be 10 percent. If the firm goes with a short-term financing plan, the financing costs on the $10,000,000 will be 8 percent, and with a long-term financing plan, the financing costs on the $10,000,000 will be 9 percent. Compute the anticipated return after financing costs on the most aggressive asset-financing mix.

Select one:

A. $100,000

B. $200,000

C. $700,000

D. $800,000

Answer 1

If firm follow Mostaggressive asset- financing mix means

in Assets, the firm goes with low liquidity plan for the assets and

In Fiancinng, the firm goes with Short term financing.

Calculation of the anticipated return after financing costs on the most aggressive asset-financing mix:-

Return on assets:- 10,000,000 * 15% =$ 1,500,000

Less-Financing cost= 10,000,000 * 8% = $ 800,000

Return after Financing cost if firm goes most agrressive Asset-Financing Mix = $ 700,000

Option C is correct.