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Q: Please, help me. Solve these problems that are given below. If you give me these math’s solutions, I will be grateful to you. 1. Stern Educational TV, Inc., has decided to buy a new computer
system with an expected life at three years at a cost of $200,000. The company can borrow $200,000 for three years at 12% annual interest or for one year at 10% annual interest. a. How much would the firm save in interest over the three year life of the computer system if the one year loan is utilized, and the loan is rolled over (reborrowed) each year at the same 10% rate? Compare this to the 12%, three year loan. b. What if interest rates on the 10% loan go up to 15% in the second year and 18% in the third year? What would be the total interest cost compared to the 12%, three year loan. 2. Assume that Atlas Sporting Goods, Inc., has $800,000 in assets. If it goes with a low-liquidity plan for the assets, it can earn a return of 15%, but with a high-liquidity plan the return will be 12%. If the firm goes with a short-term financing plan, the financing cost on the $800,000 will be 8%, and with a long-term financing plan, the financing cost on the $800,000 will be 10%. 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. 3. Lear, Inc., has $800,000 in current assets, $350,000 of which are considered permanent current assets. In addition, the firm has $600,000 invest in fixed assets. a. Lear wishes to finance all fixed assets half of its permanent current assets with long-term financing costing 10%. The balance will be financed with short-term financing, which currently costs 5%. Lear’s earnings before interests & taxes are $200,000. Determine Lear’s earnings after taxes under this financing plan. The tax rate is 30%. b. As an alternative, Lear might wish to finance all fixed assets and permanent current assets plus half of its temporary current assets with long-term financing and the balance with short-term financing. The same interest rates apply as in part b. Earnings before interests & taxes are $200,000. What will be Lear’s earnings after taxes? The tax rate is 30%.
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Asked 2/24/2010 9:05:15 PM
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