1. Hicks Health Clubs, Inc., expects to generate an annual EBIT of $513,000 and needs to obtain financing for $1,090,000 of assets. Their tax bracket is 39%. If the firm goes with a short-term financing plan, their rate will be 7.0 percent, and with a long-term financing plan their rate will be 8.0 percent. By how much will their earnings after tax change if they choose the more aggressive financing plan instead of the more conservative?
$6,649
$10,649
$6,649
$10,649
2. Frisch Fish Corp expects net income next year to be $605,000. Inventory and accounts receivable will have to be increased by $295,000 to accommodate this sales level. Frisch will pay dividends of $391,000. How much external financing will Frisch Fish need assuming no organically generated increase in liabilities?
$81,000
$192,000
$101,000
$61,000