Posted by **Angel** on Monday, June 22, 2009 at 5:50pm.

Can someone please tell me how to set these problems up? I am confused!

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 fixed assets.

a.) Lear wishes to finance all fixed 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 fixed 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.

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