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Problem 6-14 Conservative versus aggressive financing [LO6-5] Guardian Inc. is trying to develop an asset-financing plan....
Problem 6-14 Conservative versus aggressive financing [LO6-5] Guardian Inc. 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. 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. b. Given that Guardian’s earnings before interest and taxes are $250,000, calculate earnings after taxes for each of your alternatives. 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?
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jeff jeffy answered 1 year agoRelated Solutions
Guardian Inc. is trying to develop an asset-financing plan. The firm has $510,000 in temporary current...
Guardian Inc. is trying to develop an asset-financing plan. The
firm has $510,000 in temporary current assets and $410,000 in
permanent current assets. Guardian also has $610,000 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 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...
Guardian Inc. is trying to develop an asset-financing plan. The firm has $410,000 in temporary current...
Guardian Inc. is trying to develop an asset-financing plan. The
firm has $410,000 in temporary current assets and $310,000 in
permanent current assets. Guardian also has $510,000 in fixed
assets. Assume a tax rate of 30 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...
Guardian Inc. is trying to develop an asset-financing plan. The firm has $470,000 in temporary current...
Guardian Inc. is trying to develop an asset-financing plan. The
firm has $470,000 in temporary current assets and $370,000 in
permanent current assets. Guardian also has $570,000 in fixed
assets. Assume a tax rate of 30 percent.
a. 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...
Guardian Inc. is trying to develop an asset-financing plan. The firm has $530,000 in temporary current...
Guardian Inc. is trying to develop an asset-financing plan. The
firm has $530,000 in temporary current assets and $430,000 in
permanent current assets. Guardian also has $630,000 in fixed
assets. Assume a tax rate of 30 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...
Guardian Inc. is trying to develop an asset-financing plan. The firm has $380,000 in temporary current...
Guardian Inc. is trying to develop an asset-financing plan. The
firm has $380,000 in temporary current assets and $280,000 in
permanent current assets. Guardian also has $480,000 in fixed
assets. Assume a tax rate of 30 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...
Guardian Inc. is trying to develop an asset-financing plan. The firm has $340,000 in temporary current...
Guardian Inc. is trying to develop an asset-financing plan. The
firm has $340,000 in temporary current assets and $240,000 in
permanent current assets. Guardian also has $440,000 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 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...
Guardian Inc. is trying to develop an asset-financing plan. The firm has $490,000 in temporary current...
Guardian Inc. is trying to develop an asset-financing plan. The
firm has $490,000 in temporary current assets and $390,000 in
permanent current assets. Guardian also has $590,000 in fixed
assets. Assume a tax rate of 30 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...
Problem 6-16 Comparing Traditional and Activity-Based Product Margins [LO6-1, LO6-3, LO6-4, LO6-5] Hi-Tek Manufacturing Inc. makes...
Problem 6-16 Comparing Traditional and Activity-Based Product
Margins [LO6-1, LO6-3, LO6-4, LO6-5] Hi-Tek Manufacturing Inc.
makes two types of industrial component parts—the B300 and the
T500. An absorption costing income statement for the most recent
period is shown below: Hi-Tek Manufacturing Inc. Income Statement
Sales $ 1,714,000 Cost of goods sold 1,222,230 Gross margin 491,770
Selling and administrative expenses 630,000 Net operating loss $
(138,230) Hi-Tek produced and sold 60,500 units of B300 at a price
of $20 per unit...
Problem 6-20 CVP Applications: Break-Even Analysis; Cost Structure; Target Sales [LO6-1, LO6-3, LO6-4, LO6-5, LO6-6, LO6-8]...
Problem 6-20 CVP Applications: Break-Even Analysis; Cost
Structure; Target Sales [LO6-1, LO6-3, LO6-4, LO6-5, LO6-6,
LO6-8]
Northwood Company manufactures basketballs. The company has a
ball that sells for $25. At present, the ball is manufactured in a
small plant that relies heavily on direct labor workers. Thus,
variable expenses are high, totaling $15.00 per ball, of which 60%
is direct labor cost.
Last year, the company sold 36,000 of these balls, with the
following results:
Sales (36,000 balls)
$
900,000...
Problem 6-20 CVP Applications: Break-Even Analysis; Cost Structure; Target Sales [LO6-1, LO6-3, LO6-4, LO6-5, LO6-6, LO6-8]...
Problem 6-20 CVP Applications: Break-Even Analysis; Cost
Structure; Target Sales [LO6-1, LO6-3, LO6-4, LO6-5, LO6-6,
LO6-8]
Northwood Company manufactures basketballs. The company has a
ball that sells for $25. At present, the ball is manufactured in a
small plant that relies heavily on direct labor workers. Thus,
variable expenses are high, totaling $15.00 per ball, of which 60%
is direct labor cost.
Last year, the company sold 30,500 of these balls, with the
following results:
Sales (30,500 balls)
$
775,000...
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