Mighty Steel, a manufacturer of specialized tools, has $5,450,000 in assets.

Temporary current assets$2,900,000

Permanent current assets1,595,000

Capital assets 955,000

Total assets $5,450,000

Short-term rates are 7 percent. Long-term rates are 12 percent. (Note that longterm rates imply a return to any equity). Earnings before interest and taxes are $1,150,000. The tax rate is 20 percent.

If long-term financing is perfectly matched (hedged) with long-term asset needs, and the same is true of short-term financing, what will earnings after taxes be? (Show all your workings and calculations)

If the company is risk-averse will you recommend this plan? Give two reasons