09 May WHAT WILL BE LEAR’S EARNINGS AFTER TAXES?
Lear Inc. Alternative Financing StrategiesLear 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. c. What are some of the risks and cost considerations associated with each of these alternative financing strategies
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