Alternative Finance Plan

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.

| | |Question 1 |

|Current Assets | | |

| |Fixed | $600,000.00 |

| |Permanent | $175,000.00 |

| |Total | $775,000.00 |

| | | |

|Short Term |5% | $ 38,750.00 |

|Long Term |10% | $ 77,500.00 |

| | | |

|EBIT | | $200,000.00 |

|Interest | | |

|Short Term |5% | |

|Long Term |10% | $ 77,500.00 |

| | | |

|EBT | | $122,500.00 |

|Taxes |30% | $ 36,750.00 |

|Earnings After Taxes | | $ 85,750.00 |

b. As an...