The Garvin corporation is attempting to determine its working capital financing policy. Fixed assets are 700,000$ and current assets are 500,000$ are thought to be optimum. Optimum capital structure of the company is 40% debt and 60% equity. Company is considering three alternative debt financing policies, they are: a) 30% of debt requirements to be financed by short term loans, 70% of debt requirements will be financed by long term loans b) 50% of debt requirements to be financed by short term loans, 50% of debt requirements will be financed by long term loans c) 70% of debt requirements to be financed by short term loans, 30% of debt requirements will be financed by long term loans Companys expected sales for the coming year is estimated to be 2,000,000$ and operating profit is expected to be 10% of all sales. Interest rates on short term and long term loans are 8% and 12% respectively. Companys marginal tax rate is 40%. Discuss the effect of policies on companys profitability (Return on Equity) and riskiness (Current ratio)? (Hint: Formula of ROE=Net Income/Equity, Current Ratio=Current Assets/Current Liabilities. You have to prepare simple Balance Sheet and Income Statements)