### Calculate earnings after taxes for each of your alternatives

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Collins Systems, Inc., is trying to develop an asset-financing plan. The firm has \$300,000 in temporary current assets and \$200,000 in permanent current assets. Collins also has \$400,000 in fixed assets. Assume a tax rate of 40 percent.

a. Construct two alternative financing plans for the firm. One of the plans should be conservative, with 80 percent of assets financed by long-term sources and the rest financed by short-term sources. The other plan should be aggressive, with only 30 percent of the assets financed by long-term sources and the remaining assets financed by short-term sources. The current interest rate is 15 percent on long-term funds and 10 percent on short-term financing. Also compute the annual interest payments under each plan.

b. Given the Collin's earnings before interest and taxes are \$180,000, calculate earnings after taxes for each of your alternatives.

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