Rainy Day Co. has established an asset financing plan. The company has $200,000 in temporary current assets, $400,000 in permanent current assets and $700,000 in fixed assets.

The assets are financed by $300,000 in shareholders equity, and the remainder with external financing (long and short term).

The interest rate is 7% for short-term financing and 10% for long-term financing.

The companys EBIT is $300,000, and it has a tax rate of 30%.

The plan will finance temporary current assets with short-term debt, with the balance financed by long-term sources.

1. Calculate the EAT under the plan. (3 marks)

Hint - This question continues on in the next question.

Hint - Try Example 5 from the Chapter 6 Outline first - this question is very similar.

Note - don't use commas - for $100,000 type 100000