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Lear Inc. has $800,000 in current assets, $350,000 of which are considered permanent current assets. In addition, the firm has $600,000 invested in capital assets.

Lear Inc. has $800,000 in current assets, $350,000 of which are considered permanent current assets. In addition, the firm has $600,000 invested in capital assets.

a. Lear wishes to finance all capital assets and half of its permanent current assets with long-term financing costing 10 percent. Short-term financing currently costs 5 percent. Lears earnings before interest and taxes are $200,000. Determine Lears earnings after taxes under this financing plan. The tax rate is 30 percent.

Earnings after taxes $

b. As an alternative, Lear might wish to finance all capital assets and permanent current assets plus half of its temporary current assets with long-term financing. The same interest rates apply as in part a. Earnings before interest and taxes will be $200,000. What will be Lears earnings after taxes? The tax rate is 30 percent.

Earnings after taxes $

c. This part of the question is not part of your Connect assignment.

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