Lear Incorporated has $$850,000$ in current assets, $$375,000$ of which are considered permanent current assets. In addition, the firm

has $$650,000$ 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 $4$ percent. Lear's earnings before interest and taxes are

$$250,000.$ Determine Lear's 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 $$250,000.$ What will be Lear's earnings after taxes? The tax rate is $40$ percent.

Earnings after taxes