Mckinsee Inc. is developoing a plan to finance its asset base. The firm has $5 million in current assets, of which 20% are permanent, and $12 million in capital assets. Long-term rates are currently 9.5%, while short-term rates are 7%. Mackinsee's tax rate is 30%. Construct a conservative (low risk) financing plan with 80% of assets financed by long-term sources. If McKinsee's earnings before interest and taxes are $6,000,000, what will their net income be?

Include a chart showing the following entries:

Percentage of assets financed by short-term borrowing

Percentage of assets financed by long-term borrowing

EBIT

Interest expense (short- and long-term)

EBT

Taxes

Net Income

b. An alternative and more aggressive (higher risk) plan would be to finance 60% of total assets with long-term financing. Assuming that EBIT was again $6,000,000, what will net income be under this alternative?

Upload a chart showing the same entries as listed in a)

c. If interest rates were expected to increase, which plan would you recommend? Why?