Question 1 - 16 points 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. c) Which plan would you recommend to Kelly? Why? Question 2 - 4 points Eaton International Corporation expects sales next year to be $370,000. Inventory and accounts receivable will have to be increased by $95,000 to accommodate this sales level. The company has a steady profit margin of 20 percent, with a 5 percent dividend payout. How much external funding will Eaton International Corporation have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing. Question 3 - 10 points McNabb Sporting Goods makes gloves that sell well in the spring and early summer season. A projection of units sold is as follows: March April May Total Units Sold 3,500 7,500 13,000 24,000 If seasonal production is used, it is assumed that inventory will directly match sales for each month and there will be no inventory buildup. The production manager thinks the above assumption is too optimistic and decides to go with level production to avoid being out of merchandise. a. What is the ending inventory at the end of each month? Beginning inventory in March is 4,800 units. b. If the inventory costs $8 per unit and will be financed through the bank at 3 percent per annum, what is the monthly financing cost and the total for the three months