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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 capital assets. Assume a tax rate of 40 percent. a. Construct two alternative financing plans for Collins. 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 30 percent of assets financed by long-term sources. The current interest rate is 15 percent on long-term funds and 10 percent on short-term financing. Conservative Aggressive Total interest charge $ $ b. Given that Collin's earnings before interest and taxes are $180,000, calculate earnings after taxes for each of your alternatives. Earnings after taxes $ $ Conservative Aggressive c. What would happen if the short- and long-term rates were reversed?

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 capital assets. Assume a tax rate of 40 percent. a. Construct two alternative financing plans for Collins. 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 30 percent of assets financed by long-term sources. The current interest rate is 15 percent on long-term funds and 10 percent on short-term financing. Conservative Aggressive Total interest charge $ $ b. Given that Collin's earnings before interest and taxes are $180,000, calculate earnings after taxes for each of your alternatives. Earnings after taxes $ $ Conservative Aggressive c. What would happen if the short- and long-term rates were reversed?

EBK CFIN
EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter11: The Cost Of Capital
Section: Chapter Questions
Problem 20PROB
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please do it an most easy way. Do step by step. Don't just give me answers cause that wouldn't be fair. Thanks.

Subject: Corporate Finance

Problem 6-18 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 capital assets. Assume a tax rate of 40 percent. a. Construct two alternative financing plans for Collins. 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 30 percent of assets financed by long-term sources. The current interest rate is 15 percent on long-term funds and 10 percent on short-term financing. Conservative Aggressive b. Given that Collin's earnings before interest and taxes are $180,000, calculate earnings after taxes for each of your alternatives. Conservative Aggressive Total interest charge $ $ Conservative Aggressive Earnings after taxes $ $ c. What would happen if the short- and long-term rates were reversed? Earnings after taxes $ $
Transcribed Image Text:Problem 6-18 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 capital assets. Assume a tax rate of 40 percent. a. Construct two alternative financing plans for Collins. 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 30 percent of assets financed by long-term sources. The current interest rate is 15 percent on long-term funds and 10 percent on short-term financing. Conservative Aggressive b. Given that Collin's earnings before interest and taxes are $180,000, calculate earnings after taxes for each of your alternatives. Conservative Aggressive Total interest charge $ $ Conservative Aggressive Earnings after taxes $ $ c. What would happen if the short- and long-term rates were reversed? Earnings after taxes $ $
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