Chapters 6 & 7 practice problems Chapter 6 - Alternative financing plans Lear Inc. has $1,050,000 in current assets, $475,000 of which are considered permanent current assets. In addition, the firm has $850,000 invested in fixed assets. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8 percent. The balance will be financed with short-term financing, which currently costs 4 percent. Lear's earnings before interest and taxes are $450,000. Determine Lear's earnings after taxes under this financing plan. The tax rate is 40 percent. Explanation: Total current assets Permanent current assets Temporary current assets $1,050,000 $475, ODD M: 515,000 Amount Financed Annual Interest Long-term interest expense Short-term interest expense Total interest expense 132.500 Earnings before interest and taxes Interest expense Earnings before taxes Taxes Earnings after taxes 132.200 198,300