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Assume that Hogan Surgical Instruments Co. has $4,200,000 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 11 percent. If the firm goes with a short-term financing plan, the financing costs on the $4,200,000 will be 7 percent, and with a long-term financing plan, the financing costs on the $4,200,000 will be 9 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.
Low Liquidity =
High Liquidity =
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