Educational Toys, Inc. (ETI) has highly seasonal sales and financing requirements. The companys balance sheet on December 31, 2005 (now) is as follows:

ETI has made the following projections of its asset needs and net additions to retained earnings (that is, equity) for the next three years:

Assuming that ETI does not plan to sell any preferred or new common stock over the next three years:
a. Determine ETIs quarterly total assets and total (short-term and long-term) debt requirements for the next three years.
b. Plot the firms fixed, current, and total assets over time on a graph.
c. Assume that ETI follows a matching approach in financing its assets. In other words, long-term debt will be used to finance its fixed and permanent current assets, and short-term debt will be used to finance its fluctuating current assets. The per annum (i.e., 1.5 and 2 percent per quarter), respectively.-Using this information, determine the following:
i. The amount of short-term and long-term debt outstanding each quarter.
ii. ETIs total interest costs over the 3-year period under this approach
d. ETI is also considering other financing plans. One plan under consideration is a conservative policy. Under this policy, the company would determine its maximum debt requirements for the coming year and finance this entire amount with long-term debt at an interest rate of 8 percent per annum on December 31 of each year.-Any funds in excess of its seasonal (quarterly) needs would be invested in short-term interest-bearing securities to yield a 4 percent per annum rate of return. Using this information, determine the following:
i. The amount of long-term debt ETI would have to borrow each year ii. ETIs net interest costs over the 3-year period under this conservative policy
e. Finally, ETI is also considering an aggressive policy. Under this policy, the company would determine its minimum debt requirements for the coming year on December 31 of each year and finance one-half of this amount with long-term debt, with the remainder being financed by short-term debt. The costs of short-term and longterm debt under this policy are 6 and 8 percent per annum, respectively. Using this information, determine the following:
i. The amount of short-term and long-term debt outstanding each quarter ii. ETIs total interest costs over the 3-year period under this aggressive policy

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Assets Liabilities and Equity in Millions of Dollars Short-term debt (in Millions of Dollars) $ x. Current assets Fixed assets $20 Long-term debt 34 Net worth (equity) $54 Total liabilities and equity Total assets $54 Net Additions to Retained Earnings (in Millions of Dolilars) $0 Fixed Assets (in Millions Current Assets Millions Year Quarter of Dollars of Dollars) 2006 (March 31) $36 $20 2 (une 30) 3 (Sept. 30) 4 (Dec. 31) 36 36 38 38 30 2007 (March 31) 2 (June 30) 3 (Sept. 30) 4 (Dec. 3l) 28 38 2008 (March 31) 2 (June 30) 3 (Sept. 30) 4 (Dec. 31) 28 32 38 40