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**BUSI 320 Exam 2 Liberty University Complete Answer**

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**BUSI 320 Exam 2 Liberty University Complete Answer**

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Guardian Inc. is trying to develop an asset-financing plan. The firm has $410,000 in temporary current assets and $310,000 in permanent current assets. Guardian also has $510,000 in fixed assets. Assume a tax rate of 30 percent.

a. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 70 percent of assets financed by long-term sources, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sources. The current interest rate is 16 percent on long-term funds and 8 percent on short-term financing. Compute the annual interest payments under each plan.

b. Given that Guardian’s earnings before interest and taxes are $290,000, calculate earnings after taxes for each of your alternatives

c. What would the annual interest and earnings after taxes for the conservative and aggressive strategies be if the short-term and long-term interest rates were reversed?

Question

Lear Inc. has $1,000,000 in current assets, $450,000 of which are considered permanent current assets. In addition, the firm has $800,000 invested in fixed assets.

a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 9 percent. The balance will be financed with short-term financing, which currently costs 7 percent. Lear’s earnings before interest and taxes are $400,000. Determine Lear’s earnings after taxes under this financing plan. The tax rate is 30 percent.

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 a. Earnings before interest and taxes will be $400,000. What will be Lear’s earnings after taxes? The tax rate is 30 percent.

Question

Carmen’s Beauty Salon has estimated monthly financing requirements for the next six months as follows:

Short-term financing will be utilized for the next six months. Projected annual interest rates are:

a. Compute total dollar interest payments for the six months. (Round your monthly interest rate to 2 decimal places when expressed as a percent. Round your interest payments to the nearest whole cent.)

b-1. Compute the total dollar interest payments if long-term financing at 12 percent had been utilized throughout the six months? (Round your monthly interest rate to 2 decimal places when expressed as a percent. Round your interest payments to the nearest whole cent.)

b-2. If long-term financing at 12 percent had been utilized throughout the six months, would the total-dollar interest payments be larger or smaller than with the short-term financing plan?

Question

Carmen’s Beauty Salon has estimated monthly financing requirements for the next six months as follows:

Short-term financing will be utilized for the next six months. Projected annual interest rates are:

What long-term interest rate would represent a break-even point between using short-term financing and long-term financing? (Round your monthly interest rate to 2 decimal places when expressed as a percent. Round your interest payments to the nearest whole cent. Input your answer as a percent rounded to 2 decimal places.)

**BUSI 320 Exam 2 Liberty University Complete Answer**

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