Reference no: EM13101216
Q. Assume that Atlas Sporting Goods, Inc., has $800,000 in assets. If it goes with a low-liquidity plan for the assets, it can earn a return of 15 percent but with a high-liquidity plan the return will be 12 percent. If the firm goes with a short-term financing plan, the financing costs on the $800,000 will be 8 percent and with a long-term financing plan, the financing costs on the $800,000 will be 10 percent.
a. Compute the anticipated return after financing costs with the most aggressive asset-financing mix.
b. Compute the anticipated return after financing costs with the most conservative asset-financing mix.
c. Compute the anticipated return after financing costs with the two moderate approaches to the asset-financing mix.
d. If the firm used the most aggressive asset-financing mix explain in part a and had the anticipated return you computed for part a, illustrate what would earnings per share be if the tax rate on the anticipated return was 30 percent and there were 20,000 shares outstanding?
e. Now assume the most conservative asset-financing mix explain in part b will be utilized. The tax rate will be 30 percent. Also assume there will only be 5,000 shares outstanding. Illustrate what will earnings per share be? Would it be higher or lower than the earnings per share computed for the most aggressive plan computed?
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