The USF Corp. is developing a financing plan for its current assets.

It has current assets of $500,000, and fixed assets of $700,000.

The long-term rate is 11% and the short-term rate is 8.5%. Tax rate is 40%.

The company has EBIT of $325,000.

a) calculate the EAT (net income) for two financing plans -

Plan A = 80% of total assets financed by long-term sources

Plan B = 60% of total assets financed by long-term sources

b) which plan would you recommend and WHY?