Alternantive Financing Plans

Alternative Financing Plans 14. A. 175,000(half of working capital)+600,000(fixed assets)=775,000 in assets to be financed with LT Debt (10% by-line rate) The new(prenominal) $175,000(half of persistent current) will be financed at 5% as well as the 450,000 in variable current assets. ($625,000x.05) The caller-up has no equity! (Its an American bank) EBIT: 200,000 LT get down: 77500 ST spending: 31250 EBT: 108750 Taxes (30%): 32625 Net Income: 76125 B. 225,000(half of variable current assets)+350,000( unchanging current)+600,000(all fixed)=1175000 borrowed at 10% EBIT: 200,000 LT disbursal: 117500 ST Expense: 11250 EBT: 71250 Tax@30%: 21375 Net Income: 49875 C.

The main musical comedy composition to these questions is the idea of the matching principle, that is, extensive-term needs ought to be financed with dour term liabilities. The cost of long-term debt is greater, in this case 10% versus 5%, but provides for a stable funding source. swindle term debt only has a period of 1 division at its max, and then it must be renewed. One job that can be faced is difficulty in procuring short loans when they are needed. Fixed assets and current assets that are considered to be permanent (known as working capital) need to be financed with LT-debt. On the early(a) hand, financing too much of current assets with LT-debt is expensive and obviously (in the examples above) affects your bottom line.If you want to get a full essay, rig it on our websit e: Best! EssayCheap.com

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