2. The Rentz Corporation is attempting to determine the optimal level of current financing (liabilities) for the coming year. Management expects sales to increase to approximately $2 million as a result of an asset expansion presently being undertaken. Fixed assets total $1 million, and the firm wishes to maintain a 50 percent current asset to sales ratio and equity of $800,000. Rentzs interest cost is currently 8 per cent on short and 10 per cent on long term debt (if Rentz maintains a matching strategy). Three alternatives regarding the projected current financing level are available to the firm: (1) an aggressive policy requiring current financing of 60 percent of debt, (2) a matching policy of 50 percent of debt in current financing, and (3) a conservative policy requiring current financing of 40 percent of sales. The firm expects to generate earnings before interest and taxes at a rate of 12 percent on total sales. d. What is the expected return on assets and equity under each current financing plan? (Assume a 40 percent effective federal-plus-state tax rate.) e. In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption? f. How would the overall riskiness of the firm vary under each plan?