Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Chapter 6, Problem 14P
Guardian Inc. is trying to develop an asset financing plan. The firm has
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.
b. Given that Guardian’s earnings before interest and taxes are
c. What would happen if the short- and long-term rates were reversed?
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Students have asked these similar questions
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
Aggressive
Guardian 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?
Shaylee Corporation has $2.00 million to invest in new projects. The company's managers have presented a number of
possible options that the board must prioritize. Information about the projects follows:
Initial investment
Present value of future cash flows
Required:
1. Is Shaylee able to invest in all of these projects simultaneously?
2-a. Calculate the profitability index for each project.
2-b. What is Shaylee's order of preference based on the profitability index?
Complete this question by entering your answers in the tabs below.
Req 1
Project A
$ 435,000
785,000
Req 2A and 2B
Is Shaylee able to invest in all of these projects simultaneously?
Is Shaylee able to invest in all of these projects simultaneously?
Project C
$ 740,000
1,220,000
Project D
$ 965,000
1,580,000
Chapter 6 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
Ch. 6 - Prob. 1DQCh. 6 - Prob. 2DQCh. 6 - Prob. 3DQCh. 6 - Prob. 4DQCh. 6 - “The most appropriate financing pattern would be...Ch. 6 - Prob. 6DQCh. 6 - Prob. 7DQCh. 6 - Prob. 8DQCh. 6 - What are three theories for describing the shape...Ch. 6 - Since the mid-1960s, corporate liquidity has been...
Ch. 6 - Gary’s Pipe and Steel Company expects sales next...Ch. 6 - Prob. 2PCh. 6 - Tobin Supplies Company expects sales next year to...Ch. 6 - Antivirus Inc. expects its sales next year to be...Ch. 6 - Prob. 5PCh. 6 - Prob. 6PCh. 6 - Boatler Used Cadillac Co. requires $850,000 in...Ch. 6 - Biochemical Corp. requires $550,000 in financing...Ch. 6 - Sauer Food Company has decided to buy a new...Ch. 6 - Assume that Hogan Surgical Instruments Co. has...Ch. 6 - Assume that Atlas Sporting Goods Inc. has $840,000...Ch. 6 - Colter Steel has $4,200,000 in assets. Short-term...Ch. 6 - Prob. 13PCh. 6 - Guardian Inc. is trying to develop an asset...Ch. 6 - Lear Inc. has $840,000 in current assets, $370,000...Ch. 6 - Using the expectations hypothesis theory for the...Ch. 6 - Using the expectations hypothesis theory for the...Ch. 6 - Carmen’s Beauty Salon has estimated monthly...Ch. 6 - Prob. 19PCh. 6 - Eastern Auto Parts Inc. has 15 percent of its...Ch. 6 - Bombs Away Video Games Corporation has forecasted...Ch. 6 - Esquire Products Inc. expects the following...
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