91Ó°ÊÓ

The following information is provided:

Borrowing required = $2,500,000

Return on asset in low liquidity plan = 18%

Return on asset in high liquidity plan = 14%

Interest rate when using short-term financing plan = 10%

Interest rate when using long-term financing plan = 12%

The anticipated returns are $200,000

$$\begin{gathered} AnticipatedReturn=\left(Borrowedfunds×Lowliquidityplan\right)- \\ \left(Borrowedfunds×Shortterminterestrate\right) \\ =\left(\$2,500,000×18\%\right)-\left(\$2,500,000×10\%\right) \\ =\$450,000-\$250,000 \\ =\$200,000 \end{gathered}$$

The anticipated returns are $50,000.

$$\begin{gathered} AnticipatedReturn=\left(Borrowedfunds×Highliquidityplan\right)- \\ \left(Borrowedfunds×Longterminterestrate\right) \\ =\left(\$2,500,000×14\%\right)-\left(\$2,500,000×12\%\right) \\ =\$350,000-\$300,000 \\ =\$50,000 \end{gathered}$$

The anticipated returns are $150,000 or $100,000.

There can be two approaches:

$$\begin{gathered} AnticipatedReturn=\left(Borrowedfunds×Lowliquidityplan\right)- \\ \left(Borrowedfunds×Shortterminterestrate\right) \\ =\left(\$2,500,000×18\%\right)-\left(\$2,500,000×12\%\right) \\ =\$450,000-\$300,000 \\ =\$150,000 \end{gathered}$$

localid="1648253787001" $$\begin{gathered} AnticipatedReturn=\left(Borrowedfunds×Highliquidityplan\right)- \\ \left(Borrowedfunds×Longterminterestrate\right) \\ =\left(\$2,500,000×14\%\right)-\left(\$2,500,000×10\%\right) \\ =\$350,000-\$250,000 \\ =\$100,000 \end{gathered}$$

There is no necessity that the plan with the highest return has to be selected. The risk inherent in the plan should be considered when selecting the plan. The plan is selected based on the overall valuation of the organization by appropriately considering the risk-return ratio of the financing option.