Lear Inc Has 880 000 In Current Assets 390 000 Of Which Are Considered Permanent

Lear Inc. 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 = _____________