Question

Assume that Atlas Sporting Goods Inc. has $830,000 in assets. If it goes with a low-liquidity plan for the assets, it can earn a return of 14 percent, but with a high-liquidity plan the return will be 11 percent. If the firm goes with a short-term financing plan, the financing costs on the $830,000 will be 8 percent, and with a long-term financing plan the financing costs on the $830,000 will be 9 percent. a. Compute the anticipated return after financing costs with the most aggressive asset-financing mix.

Answer 1

$49,800

Step-by-step explanation:

Given that,

Assets = $830,000

Return on low-liquidity plan for the assets = 14%

Financing costs of short-term financing plan = 8% on $830,000

Anticipated return = Low liquidity return - Short term financing cost

= ($830,000 × 14%) - ($830,000 × 8%)

= $116,200 - $66,400

= $49,800

Answer 2

$49,800

Step-by-step explanation:

The computation of the anticipated return after financing costs is shown below:

= Low liquidity plan × low liquidity return - short-term financing plan × short-term financing plan return

= $830,000 × 14% - $830,000 × 8%

= $116,200 - $66,400

= $49,800

All other information which is given is not relevant. Hence, ignored it