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Collins System Inc. Financing Plans

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Collins System 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 2 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 percent of assets financed by long term sources and the remaining assets financed by short term sources. The current interest rate is 15 percent on long term funds and 10 percent on short term financing. Compute the annual interest payments under each plan. B. Given that Collins earnings before interest and taxes are 180,000 calculate earnings after taxes for each of your alternatives. Assume a tax rate of 40 percent.

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