Compute the anticipated return after financing costs

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Reference no: EM13305877

Assume that Atlas sporting goods , inc has 800,000 in assets. Ifgoes with a low-liquidity plan for the assets, it can earn a returnof 15 percent, but with a high liquidity plan the return will be 12percent. If the firm goes with a short term financing plan, thefinancing cost on the 800,000 will be 10 percent, and with along-term financing plan, the financing cost on the 800,000 will be10 percent.

a)Compute the anticipated return after financing costs with themost aggressive asset-financing mix.

b) Compute the anticipated return after financing costs with themost conservative asset-financing mix.

c) Compute the anticipated return after financing costs with thetwo moderate approaches to the asset-financing mix

d)If the firm used the most aggressive asset-financing mixdescribed in part a and had the anticipated return you computed forpart a, what would earnings per share be if the tax rate on theanticipated return was 30 percent and there were 20,000 sharesoutstanding?

e)Now assume the most conservative asset-financing mix describedin part b will be utilized. The tax rate will be 30 percent. Alsoassume there will be only be 5000 shares outstanding. What willearnings per share be? What would it be higher or lower than theearnings per share computed for the most aggressive plan computedin part d?

Reference no: EM13305877

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