Alternantive Financing Plans

Alternative Financing Plans 14. A. 175,000(half of working capital)+600,000(fixed assets)=775,000 in assets to be financed with LT Debt (10% pleasure rate) The new(prenominal) $175,000(half of persistent current) will be financed at 5% as well as the 450,000 in variable current assets. ($625,000x.05) The society has no equity! (Its an American bank) EBIT: 200,000 LT get down: 77500 ST expense: 31250 EBT: 108750 Taxes (30%): 32625 Net Income: 76125 B. 225,000(half of variable current assets)+350,000( abiding current)+600,000(all fixed)=1175000 borrowed at 10% EBIT: 200,000 LT write down: 117500 ST Expense: 11250 EBT: 71250 Tax@30%: 21375 Net Income: 49875 C.

The main musical theater composition to these questions is the idea of the matching principle, that is, extensive-term needs ought to be financed with want term liabilities. The cost of long-term debt is greater, in this case 10% versus 5%, but provides for a stable funding source. swipe term debt only has a period of 1 crime syndicate at its max, and then it must be renewed. One b other that can be faced is difficulty in procuring short-run loans when they are needed. Fixed assets and current assets that are considered to be permanent (known as working capital) need to be financed with LT-debt. On the other hand, financing too much of current assets with LT-debt is expensive and manifestly (in the examples above) affects your bottom line.If you want to get a full essay, fix up it on our website: BestEssayCheap.com

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