Lear Inc. has $1,030,000 in current assets, $465,000 of whichare considered permanent current assets. In addition, the firm has$830,000 invested in fixed assets.    
  
a. Lear wishes to finance all fixed assets andhalf of its permanent current assets with long-term financingcosting 9 percent. The balance will be financed with short-termfinancing, which currently costs 6 percent. Lear’s earnings beforeinterest and taxes are $430,000. Determine Lear’s earnings aftertaxes under this financing plan. The tax rate is 40 percent.

Earnings after tax-  

     

b. As an alternative, Lear might wish to financeall fixed assets and permanent current assets plus half of itstemporary current assets with long-term financing and the balancewith short-term financing. The same interest rates apply as in parta. Earnings before interest and taxes will be $430,000.What will be Lear’s earnings after taxes? The tax rate is 40percent.
  

Earnings after tax-  

2.

Antonio Banderos & Scarves makes headwear that is verypopular in the fall-winter season. Units sold are anticipatedas:

Monthly Unit Sales
October	1,800
November	2,800
December	5,600
January	4,600
	14,800	Total units sold

If seasonal production is used, it is assumed that inventorywill directly match sales for each month and there will be noinventory buildup.

However, Antonio decides to go with level production to avoidbeing out of merchandise. He will produce the 14,800 items overfour months at a level of 3,700 per month.

a. What is the ending inventory at the end of eachmonth? Compare the unit sales to the units produced and keep arunning total.

  

Antonio Banderos & Scarves makes headwear that is verypopular in the fall-winter season. Units sold are anticipatedas:

Monthly Unit Sales
October	1,800
November	2,800
December	5,600
January	4,600
	14,800	Total units sold

If seasonal production is used, it is assumed that inventorywill directly match sales for each month and there will be noinventory buildup.

However, Antonio decides to go with level production to avoidbeing out of merchandise. He will produce the 14,800 items overfour months at a level of 3,700 per month.

a. What is the ending inventory at the end of eachmonth? Compare the unit sales to the units produced and keep arunning total.

  

	Ending Inventory October units November units December units January units

b. If the inventory costs $6 per unit and willbe financed at the bank at a cost of 12 percent, what is themonthly financing cost and the total for the four months? (Use 1percent as the monthly rate.)

  

	Inventory Financing Cost October $ November December January Total financing cost $