Problem $6-15($Algo$)$ Alternative financing plans $[$LO$6-5]$

Lear Incorporated has $$860,000$ in current assets, $$380,000$ of which are considered permanent current assets. In addition, the firm

has $$660,000$ invested in fixed assets.

a$.$ Lear wishes to finance all fixed assets and half of its permanent current assets with long$-$term financing costing $10$ percent. The

balance will be financed with short$-$term financing, which currently costs $5$ percent. Lear's earnings before interest and taxes are

$$260,000.$ Determine Lear's earnings after taxes under this financing plan. The tax rate is $30$ percent.

Answer is complete but not entirely correct.

Earnings after taxes

$$,112,350$

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 $$260,000.$ What will be Lear's earnings after taxes? The tax rate is $30$ percent.

Answer is complete and correct.