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Assume the Hogan Surgical Instruments Co. has $3,500,000 in assets.
Assume the Hogan Surgical Instruments Co. has $3,500,000 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 would be 14 percent. If the firm goes with a short-term financing plan, the financing cost on the $3,500,000 will be 10 percent and with the long term financing plan, the financing cost on the $3,500,000 will be 12 percent.
a. Compute the anticipated return after financing cost with the most aggressive asset-financing mix.
b. Compute the anticipated return after financing cost 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. (low liquidity and high liquidity)
