Cursed Systems Inc., a manufacturer of computer hardware, has the following asset base:

Temporary Current Assets	$2,500,000
Permanent Current Assets	$3,000,000
Capital Assets	$7,000,000
Total	$12,500,000

The company is trying to develop an asset financing plan. Ideally, they would like to incorporate a perfectly hedged financing plan, where long-term assets are financed by long-term debt and short-term assets are financed by short-term debt.

Alternatively, an aggressive plan suggested by their C.F.O is to finance 40% of the total assets with short-term debt and the remaining 60% of the total assets with long-term debt.

EBIT next year is expected to be $2,000,000, and the companys tax rate is 30%. Cursed Systems Inc. has 500,000 common shares outstanding. Assume the cost of short-term debt is 5% and the cost of long-term debt is 8%. Answer the following questions based on the hedged strategy.

Total interest expense is:

925,000

375,000

465,000

525,000

Earnings after taxes is:

752,500

(723,000)

345,000

(478,000

Earnings per share is:

1.51

(1,80)

1.62

1.78