Lear Inc. has $1,020,000 in current assets, $460,000 of which are considered permanent current assets. In addition, the firm has $820,000 invested in fixed assets. a.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 5 percent. Lears earnings before interest and taxes are $420,000. Determine Lears earnings after taxes under this financingplan. The tax rate is 30 percent.

b.As an alternative, Lear might wish to finance allfixed assets and permanent current assets plus half of its temporary current assets with long-term financing and the balance with short-term financing. The sameinterest ratesapplyas in parta. Earnings before interest and taxes will be $420,000. What will be Lears earnings after taxes? The tax rate is 30 percent.

Hints References eBook& Resources WorksheetDifficulty: IntermediateLearning Objective: 06-05 Risk, as well as profitability determines the financing plan for current assets.Check my workPrevious attempt

2017 McGraw-Hill Education. All rights reserved.