Lear Incorporated has $900,000 in current assets, $400,000 of which are considered permanent current assets. In addition, the firm has $700,000 invested in fixed assets. a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8 percent. The balance will be financed with short-term financing, which currently costs 5 percent. Lear's earnings before interest and taxes are $300,000. Determine Lear's earnings after taxes under this financing plan. The tax rate is 30 percent. Earnings after taxes
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- Ohio Quarry Inc. has $10 million in assets. Its expected operating income (EBIT) is $4 million and its income tax rate is 40 percent. If Ohio Quarry finances 20 percent of its total assets with debt capital, the pretax cost of funds is 13 percent. If the company finances 40 percent of its total assets with debt capital, the pretax cost of funds is 18 percent. Round your answers to the questions below to two decimal places. Determine the rate of return on equity (ROE) under the three different capital structures (0, 20, and 40% debt ratios).0% debt ratio: % 20% debt ratio: % 40% debt ratio: % Which capital structure yields the highest expected ROE?-Select-0 percent debt and 100 percent equity20 percent debt and 80 percent equity40 percent debt and 60 percent equityItem 4 yields the highest expected ROE. Determine the ROE under each of the three capital structures (0, 20, and 40% debt ratios) if expected EBIT decreases by 30 percent.0% debt ratio: % 20% debt ratio: %…Ohio Quarry Inc. has $20 million in assets. Its expected operating income (EBIT) is $4 million and its income tax rate is 40 percent. If Ohio Quarry finances 20 percent of its total assets with debt capital, the pretax cost of funds is 10 percent. If the company finances 40 percent of its total assets with debt capital, the pretax cost of funds is 15 percent. Round your answers to the questions below to two decimal places. Determine the rate of return on equity (ROE) under the three different capital structures (0, 20, and 40% debt ratios).0% debt ratio: % 20% debt ratio: % 40% debt ratio: % Which capital structure yields the highest expected ROE? yields the highest expected ROE. Determine the ROE under each of the three capital structures (0, 20, and 40% debt ratios) if expected EBIT decreases by 40 percent.0% debt ratio: % 20% debt ratio: % 40% debt ratio: % Which capital structure yields the highest ROE calculated in part c? yields the highest expected ROE.…The Haris - Arshi Company is attempting to establish a current assets polıcy. Company has allocated $900,000 to fixed assets and the firm plans to maintain a 50 percent debt to assets a ratio. The interest rate is 10% on all debts. Company is considering three alternative current asset policies: this can be 40, 50 or 60 percent of projected sales. The company expects to earn 20 percent profit before interest and taxes on sales of $3 million. Company's effective federal-plus-state-tax rate is 15 percent. What is the expected return on equity under each alternative? Drawa descriptive conclusion for each Current ASset Investment Policy.
- MIGHTY Corp obtained a 18 % , P 500,000, one year loan from KING Financing . Income tax is 32 %. Said amount was to finance a project with an expected return on investment of 20 % .a) Compute for the cost of borrowed capital. b) Is the use of borrowed capital advisable ? Why ?Ohio Quarry Inc. has $10 million in assets. Its expected operating income (EBIT) is $4 million and its income tax rate is 40 percent. If Ohio Quarry finances 20 percent of its total assets with debt capital, the pretax cost of funds is 13 percent. If the company finances 40 percent of its total assets with debt capital, the pretax cost of funds is 18 percent. Round your answers to the questions below to two decimal places. Determine the percentage change in ROE under each of the three capital structures (that is, debt ratios) as the result of a 30 percent decline in EBIT. Use the minus sign to enter a negative percentage change in ROE if necessary.0% debt ratio: % 20% debt ratio: % 40% debt ratio: %Christensen & Assoc. is developing an asset financing plan. Christensen has $500,000 in current assets, of which 15% are permanent, and $700,000 in capital 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) What are some of the risks associated with each plan?D) Which plan would you recommend to Christensen? Why?
- Montclair Company is considering a project that will require a $520,000 loan. It presently has total liabilities of $210,000 and total assets of $630,000. 1. Compute Montclair's (a) current debt-to-equity ratio and (b) the debt-to-equity ratio assuming it borrows $520,000 to fund the project. 2. If Montclair borrows the funds, does its financing structure become more or less risky? 1. (a) 1. (b) 2. 1 Choose Denominator: 1 1 1 If Montclair borrows the funds, does its financing structure become more or less risky? Choose Numerator: Debt-to-Equity RatioMontclair Company is considering a project that will require a $500,000 loan. It presently has total liabilities of $220,000 and total assets of $620,000. 1. Compute Montclair’s (a) current debt-to-equity ratio and (b) the debt-to-equity ratio assuming it borrows $500,000 to fund the project. 2. If Montclair borrows the funds, does its financing structure become more or less risky?Guardian Inc. is trying to develop an asset-financing plan. The firm has $400,000 in temporary current assets and $300,000 in permanent current assets. Guardian also has $500,000 in fixed assets. Assume a tax rate of 40 percent. a. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 75 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 15 percent on long-term funds and 10 percent on short-term financing. Compute the annual interest payments under each plan. b. Given that Guardian’s earnings before interest and taxes are $200,000, 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?
- Capital structure analysis) The Karson Transport Company currently has net operating income of $503,000 and pays interest expense of $195,000. The company lans to borrow $1.19 million on which the firm will pay 10 percent interest. The borrowed money will used to finance an investment that is expected to increase the m's net operating income by $403,000 a year. . What is Karson's times interest earned ratio before the loan is taken out and the investment is made? . What effect will the loan and the investment have on the firm's times interest earned ratio? . What is Karson's times interest earned ratio before the loan is taken out and the investment is made? he times interest earned ratio is times. (Round to two decimal places.)Guardian Inc. is trying to develop an asset-financing plan. The firm has $500,000 in temporary current assets and $400,000 in permanent current assets. Guardian also has $600,000 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 80 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 12 percent on long-term funds and 6 percent on short-term financing. Compute the annual interest payments under each plan. Annual Interest Conservative Aggressive b. Given that Guardian's earnings before interest and taxes are $380,000, calculate earnings after taxes for each of your alternatives. Earning After Taxes Conservative AggressiveGuardian Incorporated is trying to develop an asset-financing plan. The firm has $390,000 in temporary current assets and $290,000 in permanent current assets. Guardian also has $490,000 in fixed assets. Assume a tax rate of 40 percent. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 90 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 12 percent on long-term funds and 8 percent on short-term financing. Compute the annual interest payments under each plan. Given that Guardian’s earnings before interest and taxes are $270,000, calculate earnings after taxes for each of your alternatives. 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?