Conservative and Aggressive Financing Plans
financing plan. Christensen has $500,000 in current assets of which 15% are
permanent, and $700,000 in fixed assets. The current long-term rate is 11%, and
the current short-term rate is 8.5%. Christensen’s tax rate is 40%.
Show a financing plan, conservative, with 80% of assets
financed by long-term sources.
Show a financing plan, aggressive, with only 60% of assets
financed financed by long-term sources.
If Christensen’s earnings before interest and taxes are
$325,000, what would be the net income under a aggressive plan? under a
conservative plan? What could be the risks associated with the aggressive plan?
the conservative plan?
Which plan would be recommendable by the CFO of Christensen?
Why?
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