Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Lear Inc. has $920,000 in current assets, of which $410,000 is considered permanent current assets. In addition, the company has $720,000 invested in fixed assets.

Lear Inc. has $920,000 in current assets, of which $410,000 is considered permanent current assets. In addition, the company has $720,000 invested in fixed assets. to. Lear wants to finance all of his fixed assets and half of his permanent current assets with long-term financing that costs 10 percent. The balance will be financed with short-term financing, which currently costs 7 percent. Lear's earnings before interest and taxes are $320,000. Determine Lear's after-tax earnings under this financing plan. The tax rate is 30 percent.

PROFITS AFTER TAXES:

b. Alternatively, Lear might want to finance all fixed assets and permanent current assets plus half of its temporary current assets with long-term financing and the rest with short-term financing. The same interest rates are applied as in part a. Earnings before interest and taxes will be $320,000. What will Lear's earnings be after taxes? The tax rate is 30 percent.

PROFITS AFTER TAXES:

Step by Step Solution

3.30 Rating (153 Votes )

There are 3 Steps involved in it

Step: 1

a To determine Lears aftertax earnings under this financing plan we need to calculate the interest expense and subtract it from the earnings before in... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Foundations of Financial Management

Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen

15th edition

77861612, 1259194078, 978-0077861612, 978-1259194078

More Books

Students also viewed these Finance questions

Question

Solve each equation or inequality. |6x8-4 = 0

Answered: 1 week ago