Lear Inc. has $800,000 in current assets, $350,000 of which are considered permanent current assets. In addition,
Question:
Lear Inc. has $800,000 in current assets, $350,000 of which are considered permanent current assets. In addition, the firm has $600,000 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 $200,000. Determine Lear's earnings after taxes under this financing plan. The tax rate is 30 percent. 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 $200,000. What will be Lear's earnings after taxes? The tax rate is 30 percent. c. What are some of the risks associated with each of these alternative financing strategies?
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a Lear Inc Current assets permanent current assets temporary current assets 800000 350000 450000 Longterm interest expense 10 600000 12 350000 10 7750...View the full answer
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