Guardian, Inc. is trying to develop an asset financing plan. The firm has $900,000 in temporary current assets and $1,100,000 in permanent current assets. Guardian also has $3,000,000 in capital assets. Assume a tax rate of 40 percent. The current interest rate is 10% on long term funds and 5% on short term financing.

A) Constructa conservative financing planwith90%of total assets financed bylong-term sources. If Guardian's earnings before interest and taxes are $700,000,calculate earnings after taxes.

B) If Guardian decided to use a plan that financed60% of total assets by short term sources, would this planhave more or less risk? (Explain)

C) How muchlong term financingwould they required if aperfectly hedged planwas adopted?