Question: Norton, Inc. is developing a plan to finance its asset base. The company has $5,000,000 in current assets, of which 20 percent are permanent, and $12,000,000 in fixed assets. Long-term rates are currently 9.5 percent, while short-term rates are at 7 percent. Norton’s tax rate is 30%.
An alternative & more aggressive plan would be to finance 60 percent of total assets with long-term financing. Suppose that earnings before interest and taxes was again $6,000,000, determine net income be under this alternative?