Lear, Inc., has $880,000 in current assets, $390,000 of which are considered permanent current assets. In addition, the firm has $680,000 invested in fixed assets.

(a)

Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 9 percent. The balance will be financed with short-term financing, which currently costs 7 percent. Lears earnings before interest and taxes are $280,000. Determine Lears earnings after taxes under this financing plan. The tax rate is 30 percent. (Omit the "$" sign in your response.)

Earnings after taxes

$

(b)

As an alternative, Lear might wish to finance all of its fixed assets and permanent current assets plus half of its temporary current assets with long-term financing and the balance with short-term financing. The same interest rates apply as in part a. Earnings before interest and taxes will be $280,000. What will be Lears earnings after taxes? The tax rate is 30 percent. (Omit the "$" sign in your response.)

Earnings after taxes

$