Lear Inc. has $870,000 in current assets, $385,000 of which are considered permanent current assets. In...

50.1K

Verified Solution

Question

Accounting

Lear Inc. has $870,000 in current assets, $385,000 of which areconsidered permanent current assets. In addition, the firm has$670,000 invested in fixed assets.

a. Lear wishes to finance all fixed assets andhalf of its permanent current assets with long-term financingcosting 8 percent. The balance will be financed with short-termfinancing, which currently costs 6 percent. Lear’s earnings beforeinterest and taxes are $270,000. Determine Lear’s earnings aftertaxes under this financing plan. The tax rate is 40 percent.



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 $270,000.What will be Lear’s earnings after taxes? The tax rate is 40percent.

Answer & Explanation Solved by verified expert

4.5 Ratings (827 Votes)

a Calculation of Earnings After Tax Earning Before Interest andTax 270000 Less Interest on Long Term Financing 69000 Interest on Short Term Financing 40650 Earning Before Tax 160350 Less Tax 40 64140 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Lear Inc. has $870,000 in current assets, $385,000 of which areconsidered permanent current assets. In addition, the firm has$670,000 invested in fixed assets. a. Lear wishes to finance all fixed assets andhalf of its permanent current assets with long-term financingcosting 8 percent. The balance will be financed with short-termfinancing, which currently costs 6 percent. Lear’s earnings beforeinterest and taxes are $270,000. Determine Lear’s earnings aftertaxes under this financing plan. The tax rate is 40 percent. 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 $270,000.What will be Lear’s earnings after taxes? The tax rate is 40percent.