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Christensen & Assoc. Is developing an asset financing plan. Christensen has $500,000 In current assets, of which 15% are permanent, and $700,000 in fixed assets. The current long-term rate is 11%, and the current short-term rate is 8.5%. Christensen 's tax rate is 40%.
A) construct two financing plans----one conservative, with 80 of assets financed by long-term sources, and the other aggressive, with only 60% of asstes financed by long-term sources.
B) If Christensen 's earnings before interest and taxes are $325,000, calculate net income Under each alternative.
C) what are some of the risks associated with each plan ?
D) Which plan would you recommend to Christensen ? Why ?
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