Hogan Surgical Instruments Co

 

Assume that Hogan Surgical Instruments Co. has $2,000,000 in assets. If it
goes with a low liquidity plan for the assets, it can earn a return of 18 percent,
but with a high liquidity plan, the return will be 14 percent. If the firm goes
with a short-term financing plan, the financing costs on the $2,000,000 will be
10 percent, and
with a long-term financing plan, the financing costs on the
$2,000,000 will be 12 percent. (Review Table 6-11 for parts
a, b, and c of this
problem.)

 

a. Compute the anticipated return after financing costs on the most aggressive
asset-financing mix.

 

b. Compute the anticipated return after financing costs on the most
conservative asset-financing mix.

 

c. Compute the anticipated return after financing costs on the two moderate
approaches to the asset-financing mix.