Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Lear Inc. has $950,000 in current assets, $425,000 of which are considered permanent current assets. In addition, the firm has $750,000 invested in fixed assets.

Lear Inc. has $950,000 in current assets, $425,000 of which are considered permanent current assets. In addition, the firm has $750,000 invested in fixed assets.

a.

Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 10 percent. The balance will be financed with short-term financing, which currently costs 6 percent. Lears earnings before interest and taxes are $350,000. Determine Lears earnings after taxes under this financing plan. The tax rate is 40 percent.

Earnings after taxes $

b.

As an alternative, Lear might wish to finance all 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 $350,000. What will be Lears earnings after taxes? The tax rate is 40 percent.

Earnings after taxes $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

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

Step: 3

blur-text-image

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

School Finance Elections

Authors: Don E. Lifto, Bradford J. Senden, Daniel A. Domenech

2nd Edition

1607091488, 978-1607091486

More Books

Students also viewed these Finance questions