Calculate earnings after taxes

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The firm has $300,000 in temporary current assets and $200,000 in permanent current assets. $400,000 in capital assets. Assume a tax rate of 40%.

a. Construct two alternatives financing plans. One of the plans should be conservative, with the 80% of assets financed by long-term sources, and the other should be aggressive, with only 30% of assets financed by long-term sources. The current interest rate is 15% on long-term funds and 10% on short term financing

b. Given that earnings before interest and taxes are $180,000, calculate earnings after taxes for each of your alternatives

c. What would happen if the short and long-term rates were reversed?

Reference no: EM132497973

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