Assume Stratton Health Clubs, Inc., has $3,000,000 in assets. If it goes with a low liquidity plan for the assets, it can earn a return of 20 percent, but with a high liquidity plan, the return will be 13 percent. If the firm goes with a short-term financing plan, the financing costs on the $3,000,000 will be 10 percent, and with a long-term financing plan, the financing costs on the $3,000,000 will be 12 percent.
a. Computer the anticipated return after financing costs with the most aggressive asset-financing mix.
b. Computer the anticipated return after financing costs with the most conservative asset-financing mix.
c. Compute the anticipated return after financing costs with the two moderate approaches to the asset-financing mix.
d. Would you necessarily accept the plan with the highest return after financing costs? Briefly explain.