Accountingbusiness
posted by Tommy .
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 longterm financing costing 10 percent. Shortterm 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.
A. 175,000(half of working capital)+600,000(fixed assets)=775,000 in assets to be financed with LT Debt (10% interest rate)
The other $175,000(half of permanent current) will be financed at 5% as well as the 450,000 in variable current assets. ($625,000x.05)
Long term financing.
Can anyone tell me if one of these is correct? I have come out with these two figures but I am not sure which is the correct way to go.
EBIT: 200,000
LT Expense: 77500
ST Expense: +31250
EBT: =108750
Taxes (30%): 32625
Net Income: =76125 Or,
Long term financing 775000
Short term financing 625000
EBIT 200000
Less: Short term Interest 31250
Less: Long term Interest 77500
Less: Taxes 27375
EAT 63875
Respond to this Question
Similar Questions

Accounting
Can anyone tell me if one of these is correct? 
Accountingbusiness
Here is the other part that did not fit on the other post. 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 … 
Accounting
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 … 
Accountingbusiness
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 … 
accounting
Can someone please tell me how to set these problems up? 
accounting
14. 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. 
FInance
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 … 
Math
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 … 
finance 200
14. 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 … 
Finance
Lear, Inc. has $800,000 is current assets, $300,000 of which are considered permanent current assets. In addition, the firm has $600,000 in fixed assets. A. Lear wishes to finance all fixed assets and half of its permanent current …