Week 6 Finance - 10%[600000+350000+225000) 10%*1175000...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Current Assets - Permanent Current Assets = Temporary Current Assets $800000 - $350000= $450000 Short-term interest expense 5% [$450000 + .5($350000)] 5% [$450000 + $175000] 5% x $625000 $31,250 Long-term interest expense 10% [$600000 + .5($350000)] 10% [$600000 + $175000] 10% x $775000 77500 Total interest rate $ 31250 + $77500 108750 Earnings Before$200,000 Less: Short term$31,250 Less: Long term$77,500 Less: Taxes $0 Earnings After T91250
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Short-term interest expenses 5%[.5(450000)] 5%[225000] 11250 Long-term interest expenses 10%[600000+350000+.5(450000)]
Background image of page 2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 4
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 6
Background image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 10%[600000+350000+225000) 10%*1175000 117500 Total Interest expense 11250+117500 128750 Earnings b 200000 Less: Shor 11250 Less: Long 117500 Less: Taxe 21375 Earnings a 49875 Option B is more expensive with fewer earnings after taxes but is less ris isky. However, the long-term capital may be more than necessary and can be e used for investment. The rates are not high like the short-term rates for pla lan B. Plan B is overall a better option compared to the risks of option A....
View Full Document

Page1 / 7

Week 6 Finance - 10%[600000+350000+225000) 10%*1175000...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online