Beard Brothers Inc. has $1,000,000 in current assets and $1,800,000 in capital assets. 1/2 of the current assets are considered to be temporary current assets, and 1/2 are permanent current assets.

Beard Brothers has secured long-term interest rate of 7% and the short-term rate is 4%. The companys tax rate is 30%.

The CFO has determined that of permanent current assets and all of the capital assets will be financed with long- term debt. of permanent current assets and all temporary current asset will be financed with short-term debt. Assume that all assets will have to be financed.

Required:

a) Calculate (2 marks)

i. the amount of short-term financing to be borrowed.

ii. the amount of long-term financing to be borrowed.

b) Calculate the amount of interest expense for the year. (2 marks)

c) If Beard Bros. has EBIT of $425,000, calculate the amount of net income (EAT) for the year.(2 marks)