Christensen & Assoc.is developing an asset financing plan.Christensen has $500,000 in current assets,of which 15% are permanent,and $700,000 in capital 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 assets 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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C)Plan A: Interest rates could drop sig...View Answer
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