FIN 200 WEEK 5
Alternative Financing Plans
A. Short-term interest exp. (400,000 + ½ (300,000)) 5% = (550,000) 5% = 27,500
Long-term interest exp. (400,000 + ½ (300,000)) 10% = (550,000) 10% = 55,000
27,500 + 55,000 = 82,500
Earnings before interest and taxes = 200,000
Interest expenses = 82,500
Earnings before taxes = 200,000 – 82,500 = 117,500
Taxes = 117,500 X 34% = 39,950
Earnings after interest and taxes = 200,000 – 82,500 – 39,950 = 77,550
B. Short-term interest exp. ( ½ (400,000)) 5% = (200,000) 5% = 10,000
Long-term interest exp. (400,000 + 300,000 + ½ (400,000)) 10% = (900,000) 10% = 90,000
10,000 + 90,000 = 100,000
Earnings before interest and taxes = 200,000
Interest Expenses = 100,000
Earnings before taxes = 200,000 - 100,000 = 100,000
Taxes = 100,000 X 34% = 34,000
Earnings after interest and taxes = 200,000 – 100,000 – 34,000 = 66,000
C. Finance plan A will have lower interest expenses than finance plan B. However, finance plan A will have a higher tax expense and over all earning. When looking over both A and B finance plans A is the best financial plan. The reason that I say this is because A will cost less in over all expenses, and has a higher earning amount. Therefore, I believe that financial plan B is a higher risk and lower profits.
Alternative Financing Plans
A. Short-term interest exp. (400,000 + ½ (300,000)) 5% = (550,000) 5% = 27,500
Long-term interest exp. (400,000 + ½ (300,000)) 10% = (550,000) 10% = 55,000
27,500 + 55,000 = 82,500
Earnings before interest and taxes = 200,000
Interest expenses = 82,500
Earnings before taxes = 200,000 – 82,500 = 117,500
Taxes = 117,500 X 34% = 39,950
Earnings after interest and taxes = 200,000 – 82,500 – 39,950 = 77,550
B. Short-term interest exp. ( ½ (400,000)) 5% = (200,000) 5% = 10,000
Long-term interest exp. (400,000 + 300,000 + ½ (400,000)) 10% = (900,000) 10% = 90,000
10,000 + 90,000 = 100,000
Earnings before interest and taxes = 200,000
Interest Expenses =
A. Short-term interest exp. (400,000 + ½ (300,000)) 5% = (550,000) 5% = 27,500
Long-term interest exp. (400,000 + ½ (300,000)) 10% = (550,000) 10% = 55,000
27,500 + 55,000 = 82,500
Earnings before interest and taxes = 200,000
Interest expenses = 82,500
Earnings before taxes = 200,000 – 82,500 = 117,500
Taxes = 117,500 X 34% = 39,950
Earnings after interest and taxes = 200,000 – 82,500 – 39,950 = 77,550
B. Short-term interest exp. ( ½ (400,000)) 5% = (200,000) 5% = 10,000
Long-term interest exp. (400,000 + 300,000 + ½ (400,000)) 10% = (900,000) 10% = 90,000
10,000 + 90,000 = 100,000
Earnings before interest and taxes = 200,000
Interest Expenses = 100,000
Earnings before taxes = 200,000 - 100,000 = 100,000
Taxes = 100,000 X 34% = 34,000
Earnings after interest and taxes = 200,000 – 100,000 – 34,000 = 66,000
C. Finance plan A will have lower interest expenses than finance plan B. However, finance plan A will have a higher tax expense and over all earning. When looking over both A and B finance plans A is the best financial plan. The reason that I say this is because A will cost less in over all expenses, and has a higher earning amount. Therefore, I believe that financial plan B is a higher risk and lower profits.
Alternative Financing Plans
A. Short-term interest exp. (400,000 + ½ (300,000)) 5% = (550,000) 5% = 27,500
Long-term interest exp. (400,000 + ½ (300,000)) 10% = (550,000) 10% = 55,000
27,500 + 55,000 = 82,500
Earnings before interest and taxes = 200,000
Interest expenses = 82,500
Earnings before taxes = 200,000 – 82,500 = 117,500
Taxes = 117,500 X 34% = 39,950
Earnings after interest and taxes = 200,000 – 82,500 – 39,950 = 77,550
B. Short-term interest exp. ( ½ (400,000)) 5% = (200,000) 5% = 10,000
Long-term interest exp. (400,000 + 300,000 + ½ (400,000)) 10% = (900,000) 10% = 90,000
10,000 + 90,000 = 100,000
Earnings before interest and taxes = 200,000
Interest Expenses =