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Lear, Inc. has $1,600,000 in current assets, $670,000 of which are considered permanent current assets. In...

Lear, Inc. has $1,600,000 in current assets, $670,000 of which are considered permanent current assets. In addition, the firm has $920,000 invested in capital assets.

a. Lear wishes to finance all capital assets and half of its permanent current assets with long-term financing costing 10 percent. Short-term financing currently costs 5 percent. Lear’s earnings before interest and taxes are $520,000. 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 capital assets and permanent current assets plus half of its temporary current assets with long-term financing. The same interest rates apply as in part a. Earnings before interest and taxes will be $520,000. What will be Lear’s earnings after taxes? The tax rate is 30 percent.

   

Earnings after taxes            $

c. Not available in Connect.

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