Kelly & Assoc. is developing an asset financing plan. Kelly has $500,000 in current assets, of which 15% are permanent, and $700,000 in capital assets. The current long-term rate is 11%, and the current short-term rate is 8.5%. Kelly's tax rate is 40%.

a) Construct three financing plans the first: perfectly hedged, the second: conservative, with 80% of assets financed by long-term sources, and the third: aggressive, with only 60% of assets financed by long-term sources.

b) If Kelly's earnings before interest and taxes are $325,000, calculate net income under each alternative.