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Guardian Inc. is trying to develop an asset-financing plan. The firm has $440,000 in temporary current assets and $340,000 in permanent current assets. Guardian also has $540,000 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 60 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 11 percent on long-term funds and 6 percent on short-term financing. Compute the annual interest payments under each plan. b. Given that Guardian’s earnings before interest and taxes are $320,000, 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?
Present Value and Multiple Cash Flows-Investment X offers to pay you $4,700 per year for eight years, whereas Investment Y offers to pay you $6,700 per year
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Lee Michaels Jewelers recently issued a $1,000 face, 10 year zero coupon bond. The initial offering sold in January, 2008 for $500. Despite the fact that the bond doesn’t pay interest, the IRS says you must declare the implicit interest for tax purpo..
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