Illustrate what are some of risks associated with each plan

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Reference no: EM13113215

Q. Christensen & Assoc. is developing an asset financing plan. Christensen has $500,000 in current assets, of which 15% are permanent and $700,000 in fixed assets. The current long-term rate is 11% and the current short-term rate is 8.5%. Christensen's tax rate is 40%.

a) Construct two financing plans - one conservative, with 80% of assets financed by long-term sources and the other aggressive, with only 60% of assets financed by long-term sources.

b) If Christensen's earnings before interest and taxes are $325,000, calculate net income under each alternative.

c) Illustrate what are some of the risks associated with each plan?

d) If the yield curve is steeply inverted, which financing plan should Christensen choose?

Reference no: EM13113215

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