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.

$$\begin{gathered} \mathbf{Anticipated}\mathbf{returns}\mathbf{=}\mathbf{(}\mathbf{Borrowed}\mathbf{funds}\mathbf{×}\mathbf{Low}\mathbf{liquidity}\mathbf{plan}\mathbf{)} \\ \mathbf{-}\mathbf{(}\mathbf{Borrowed}\mathbf{funds}\mathbf{×}\mathbf{Short}\mathbf{-}\mathbf{term}\mathbf{interest}\mathbf{rate}\mathbf{)} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{(}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{500}\mathbf{,}\mathbf{000}\mathbf{×}\mathbf{18}\mathbf{\%}\mathbf{)}\mathbf{-}\mathbf{(}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{500}\mathbf{,}\mathbf{000}\mathbf{×}\mathbf{10}\mathbf{\%}\mathbf{)} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{450}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{250}\mathbf{,}\mathbf{000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{200}\mathbf{,}\mathbf{000} \end{gathered}$$

The anticipated returns are $50,000.

$$\begin{gathered} \mathbf{Anticipated}\mathbf{returns}\mathbf{=}\mathbf{(}\mathbf{Borrowed}\mathbf{funds}\mathbf{×}\mathbf{High}\mathbf{liquidity}\mathbf{plan}\mathbf{)} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{-}\mathbf{(}\mathbf{Borrowed}\mathbf{funds}\mathbf{×}\mathbf{Long}\mathbf{-}\mathbf{term}\mathbf{interest}\mathbf{rate}\mathbf{)} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{(}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{500}\mathbf{,}\mathbf{000}\mathbf{×}\mathbf{14}\mathbf{\%}\mathbf{)}\mathbf{-}\mathbf{(}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{500}\mathbf{,}\mathbf{000}\mathbf{×}\mathbf{12}\mathbf{\%}\mathbf{)} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{350}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{300}\mathbf{,}\mathbf{000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{50}\mathbf{,}\mathbf{000} \end{gathered}$$

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

There can be two approaches:

$$\begin{gathered} \mathbf{Anticipated}\mathbf{returns}\mathbf{=}\mathbf{(}\mathbf{Borrowed}\mathbf{funds}\mathbf{×}\mathbf{Low}\mathbf{liquidity}\mathbf{plan}\mathbf{)} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{-}\mathbf{(}\mathbf{Borrowed}\mathbf{funds}\mathbf{×}\mathbf{Long}\mathbf{-}\mathbf{term}\mathbf{interest}\mathbf{rate}\mathbf{)} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{(}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{500}\mathbf{,}\mathbf{000}\mathbf{×}\mathbf{18}\mathbf{\%}\mathbf{)}\mathbf{-}\mathbf{(}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{500}\mathbf{,}\mathbf{000}\mathbf{×}\mathbf{12}\mathbf{\%}\mathbf{)} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{450}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{300}\mathbf{,}\mathbf{000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{150}\mathbf{,}\mathbf{000} \\ \mathbf{\text{Anticipated returns}}\mathbf{=}\mathbf{\text{(Borrowed funds}}\mathbf{×}\mathbf{\text{High liquidity plan )}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{-}\mathbf{(}\mathbf{\text{Borrowed funds}}\mathbf{×}\mathbf{\text{Short-term interest rate}}\mathbf{)} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{(}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{500}\mathbf{,}\mathbf{000}\mathbf{×}\mathbf{14}\mathbf{\%}\mathbf{)}\mathbf{-}\mathbf{(}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{500}\mathbf{,}\mathbf{000}\mathbf{×}\mathbf{10}\mathbf{\%}\mathbf{)} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{350}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{250}\mathbf{,}\mathbf{000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{100}\mathbf{,}\mathbf{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.