Mckinsee inc. is developing a plan to finance its asset, Ask an Expert

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McKinsee Inc. is developing a plan to finance its asset base. The firm has $5,000,000 in current assets of which 20% are permanent and $12,000,000 in fixed assets. Long-term rates are currently 9.5%, while short-term rates are at 7%. McKinsee's tax rate is 30%.
a) Make a conservative financing plan with 80% of assets financed by long-term sources. If McKinsee's earnings earlier interest and taxes are $6,000,000, explain what will their net income be?
b) An alternative as well as more aggressive plan would be to finance 60% of total assets with long-term financing. Presuming that EBIT was again $6,000,000 what will net income be under this alternative?
c) Explain if interest rates were expected to increase which plan would you recommend? Why?

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Business Management, Management Studies

Category:- Business Management
Reference No.:- M9391312

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