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.

To solve these problems, we need to calculate the earnings after taxes using the given financial information. Let's break down each problem and explain how to set it up:

a.) The first problem asks us to calculate Lear's earnings after taxes under a specific financing plan. Here are the given information:

- Current assets: $800,000
- Permanent current assets: $350,000
- Fixed assets: $600,000
- Long-term financing interest rate: 10%
- Short-term financing interest rate: 5%
- Earnings before interest and taxes: $200,000
- Tax rate: 30%

To set up the problem, we need to determine the amount of long-term financing and short-term financing needed.

1. Long-term financing amount:
- Fixed assets: $600,000
- Permanent current assets (half): $350,000/2 = $175,000
Total long-term financing amount: $600,000 + $175,000 = $775,000

2. Short-term financing amount:
Total current assets - long-term financing amount = $800,000 - $775,000 = $25,000

Now, we can calculate the interest expenses for each financing type and determine the Earnings Before Taxes (EBT):

- Long-term financing total interest expense: $775,000 * 10% = $77,500
- Short-term financing total interest expense: $25,000 * 5% = $1,250

EBT = Earnings Before Interest and Taxes - Total interest expense
EBT = $200,000 - ($77,500 + $1,250)
EBT = $200,000 - $78,750
EBT = $121,250

Finally, we can calculate the Earnings After Taxes (EAT) using the tax rate:

EAT = EBT - (EBT * Tax Rate)
EAT = $121,250 - ($121,250 * 30%)
EAT = $121,250 - $36,375
EAT = $84,875

Therefore, Lear's earnings after taxes under this financing plan would be $84,875.

b.) In the second problem, we need to calculate Lear's earnings after taxes under an alternative financing plan. Here are the given information:

- Current assets: $800,000
- Permanent current assets: $350,000
- Fixed assets: $600,000
- Long-term financing interest rate: 10%
- Short-term financing interest rate: 5%
- Earnings before interest and taxes: $200,000
- Tax rate: 30%

To set up the problem, we need to determine the amount of long-term financing and short-term financing needed.

1. Long-term financing amount:
- Fixed assets: $600,000
- Permanent current assets: $350,000
- Temporary current assets (half): ($800,000 - $350,000)/2 = $225,000
Total long-term financing amount: $600,000 + $350,000 + $225,000 = $1,175,000

2. Short-term financing amount:
Total current assets - long-term financing amount = $800,000 - $1,175,000 = -$375,000

Since the short-term financing amount is negative, it means that no short-term financing is required under this alternative plan.

Now, we can calculate the interest expenses for the long-term financing and determine the Earnings Before Taxes (EBT):

- Long-term financing total interest expense: $1,175,000 * 10% = $117,500

EBT = Earnings Before Interest and Taxes - Total interest expense
EBT = $200,000 - $117,500
EBT = $82,500

Finally, we can calculate the Earnings After Taxes (EAT) using the tax rate:

EAT = EBT - (EBT * Tax Rate)
EAT = $82,500 - ($82,500 * 30%)
EAT = $82,500 - $24,750
EAT = $57,750

Therefore, Lear's earnings after taxes under this alternative financing plan would be $57,750.