I am trying this one more timeLear, 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. 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 775000Short-term financing 625000EBIT 200000Less: Short-term interest 31250Less: Long-term interest 77500Less: Taxes 27375EAT 63875
63,875 is the answer I came up with. I hope this is the correct answer, but not 100% positive