FIN 200: Assignment Workbook Week 5 Solution

FIN 200

Axia College of University of Phoenix (UoP)

Introduction to Finance: Harvesting the Money Tree

Finance 200 Assignment Workbook Week 5 Solution

Week 5 Assignment: Alternative Financing Plans

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The Niara Corporation has the following financials:
Permanent Current Assets $ 675,000
Total Current Assets $ 905,000
Fixed Assets $ 550,000
Long‐term Financing Cost 9%
Short‐term Financing Cost 2%
EBIT $ 330,000
Tax Rate 40%

Please note that Permanent Current Assets plus Temporary Current Assets equal Total Current Assets. Please assume that all Current Assets are either financed long term or short term.

a. The Niara Corporation wishes to finance all fixed assets and half of its permanent current assets with long‐term financing. Determine The Niara Corporation’s earnings after taxes under this financing plan.
b. As an alternative, The Niara Corporation might wish to finance all fixed assets and permanent current assets plus half of its temporary current assets with long‐term financing. What will be the Niara Corporation’s earnings after taxes?
c. What are some of the risks and cost considerations associated with each of these alternative financing strategies?

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