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FIN 200 WEEK 5 ALTERNATIVE FINANCING PLANS--LEAD INC. (ANSWER KEY)

FIN 200 WEEK 5 ALTERNATIVE FINANCING PLANS--LEAD INC. (ANSWER KEY)
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FIN 200 WEEK 5 ALTERNATIVE FINANCING PLANS--LEAD INC

 

 

Week 5 - Alternative Financing Plans         Chapter 6      
                     
Lead Inc. financial data:                    
                     
Current Assets $795,000                  
Permanent Current Assets $365,000                  
Fixed Assets $600,000                  
Tax Rate 34%                  
Long-Term Financing 9%                  
Short-Term Financing 5%                  
                     
a.  Lead wishes to finance all fixed assets and half of its permanent current
assets with long-term financing.  All other assets will be financed with short-term financing.    
Lead's earnings before interest and taxes (EBIT) are $200,000.          
What will be Lead's earnings after taxes (EAT)?                
                     
b.  The alternative, Lead might wish to finance all fixed and permanent  
current assets plus half of its temporary current assets with long-term        
financing.  All other assets will be financed with short-term financing.  The same interest  
rates apply as in part A.  Earnings before interest and taxes (EBIT) will be $200,000.    
What will be Lead's earnings after taxes (EAT)?                
                     

c.  What are some of the risks and cost considerations with each financing plan?

 

 

FILE: MS WORD and EXCEL

 

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