Assignment Alternative Financial Plans

)  Current Assets – Permanent Assets = Temporary Current Assets

     

      $800,000     -     $350,000    =      $450,000

 

 

      Short-term interest expense = 5 % [$450,000 + .5($350,000)]

                                                   = 5 %( $625,000)

                                                   = $31,250

 

      Long-term interest expense = 10 % [$600,000 + .5($350,000)]

                                                   = 10 %( $775,000)

                                                   = $77,500

 

      Total Interest expense          = $ 31,250 + 77,500

                                                   = $108,750

 

      EBIT                                        $200,000

            Interest expense                   108,750

      Earnings before taxes               $ 91,250

            Taxes (30%)                          27,375

      Earnings after taxes                  $ 63,875
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