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# Collins Systems: Two Asset Financing Plans

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Scenario: Collins Systems Inc is trying to develop an asset-financing plan. The firm has \$300,000 in temporary current assets and \$200,000 in permanent current assets. Collins also has \$400,000 in fixed assets.

Construct two alternative financing plans for the firm. One of the plans should be conservative, with 80 percent of assets financed by long-term sources and the rest financed by short-term sources. The other plan should be aggressive, with only 30% of assets financed by long term sources and the remaining assets financed by short-term sources. The current interest rate is 15% on long-term funds and 10% on short-term financing. Compute the annual interest payments under each plan. Given that Collin's earnings before interest and taxes are \$180,000, calculate earnings after taxes for each of your alternatives. Assume a tax rate of 40%.

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Assets
Temporary current Assets = \$300,000
Permanent current Assets = \$200,000
Fixed Assets = \$400,000
Total Assets = \$900,000

Interest ...

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The solution is a clear, easy-to-read Excel spreadsheet attached where the calculations and formulas involved in this question of annual interest payments are plainly viewable.

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