The CEO of Heller Incorporated has tasked you with developing an asset financing plan for the organization. Consider the following information:

• $500,000 in current assets (20% permanent)
• $800,000 in capital assets

The long-term interest rate is 11%, and the current short-term rate is 8.5%. The tax rate for Heller Incorporated is 40%. EBIT is $325,000.

Required:

a. Calculate the net income under a conservative plan where capital assets and permanent current assets are financed by long-term debt, and temporary current assets are financed by short-term debt

b. Calculate the net income under a more aggressive plan where capital assets and half of the permanent current assets are financed by long-term debt, and the rest of the assets are financed by short-term debt.