Question

Hicks Health Clubs, Inc., expects to generate an annual EBIT of $750,000 and needs to obtain financing for $1,200,000 of assets. Its tax bracket is 40%. If the firm uses short-term debt, its rate will be 7.5%, and if it uses long-term debt, its rate will be 9%. By how much will their earnings after taxes change if they choose the more aggressive financing plan instead of the more conservative plan

Answer 1

Answer:

Hicks Health Clubs, Inc. earnings after taxes will change by minus $10,800 if they choose the more aggressive financing plan instead of the more conservative plan.

Explanation:

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