Lear Incorporated 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. Lear's earnings before interest and taxes are $$280,000.$ Determine Lear's 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 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 Lear's earnings after taxes? The tax rate is $30$ percent.

Earnings after taxes