Develop an asset-financing plan

Assignment Help Financial Management
Reference no: EM131575732

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?

Reference no: EM131575732

Questions Cloud

How much total interest will be paid over the life of loan : Lou Lewis borrows $100,000 to be repaid over 10 years at 6 pecent. How much total interest will be paid over the life of this loan?
What is the volatility of portfolio : What is the volatility (standard deviation) of a portfolio that consists of an equal investment in a. 18 firms of type S? b. 18 firms of type I?
What is unidas after-tax debt cost of capital : What is Unidas after-tax debt cost of capital? What is Unida's weighted average cost of capital?
Future growth of the company based on the retention model : what is the expected future growth of the company based on the retention model?
Develop an asset-financing plan : Guardian Inc. is trying to develop an asset-financing plan. Compute the annual interest payments under each plan.
What is present value of this business opportunity : What is the present value of this business opportunity if the interest rate is 8?% per? year?
Importance of strategic planning for an organization : Ascertain the importance of strategic planning for an organization.
What is present value of this business opportunity : What is the present value of this business opportunity if the interest rate is 88?% per? year?
What is the annual interest rate paid by the bank account : What is the annual interest rate paid by the bank account? Assume interest is compounded annually.

Reviews

Write a Review

Financial Management Questions & Answers

  Present value and multiple cash flows

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

  Enough money for her desired retirement fund

how much must she save at the end of each month before retirement in order to have enough money for her desired retirement fund?

  NPV break-even level of sales if the firm pays no taxes

Modern Artifacts can produce keepsakes that will be sold for $80 each. What is the NPV break-even level of sales if the firm pays no taxes?

  What percent would its roe increase

Tapley Dental Supply Company has the following data: Net income: $240 Sales: $10,000 Total assets: $6,000 Debt ratio: 75% TIE ratio: 2.0 Current ratio: 1.2 If Tapley could streamline operations, cut operating costs, and raise net income to $520, with..

  Meaning of future value of an annuity in excel spreadsheet

Compute the future value of $5,000 deposited annually for 5 years, assuming a 10% annual interest rate compounded once a year. You may want to use the Excel function for computing the future value of an annuity or an FV table of factors. Explain the ..

  Coupon bonds on the market-what is the current bond price

Lycan, Inc., has 8.6 percent coupon bonds on the market that have 9 years left to maturity. The bonds make annual payments. Required: If the YTM on these bonds is 10.6 percent, what is the current bond price?

  Fixed spreads between them and target federal funds rate

In a graph of the market for bank reserves, show how the Federal Reserve limits deviations of the market federal funds rate from its interest rate target under the channel system. Next, show how the Open Market Trading Desk would implement a decision..

  Aftertax salvage value

An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,020,000 and will be sold for $1,220,000 at the end of the project. If the tax rate is 35 percent, what is the aftertax s..

  What is the firm cash conversion cycle

What is the firm's cash conversion cycle?

  What is the implicit interest for this bond in year

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..

  Firm to do in order to completely avoid the currency risk

What do you suggest the firm to do in order to completely avoid the currency risk in that year?

  Appropriate discount rate-what is the present value

An investment will pay you $33,000 in 12 years. If the appropriate discount rate is 6 percent compounded daily, what is the present value?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd