Fin200-Ch.6 Assignment - Perm. Current Assets= $ 350,000.00...

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Week 5 Assignment: Alternative Financing Plans Problem 14, p. 184 A: Lear’s earnings after taxes (EAT) under this financing plan would be $ 7, 537.00 Total Assets = $975,000.00 Fixed Assets= $ 600,000.00 ½ of Perm. Current Assets= $ 175,000.00 Current Earnings = $ 200,000.00 775,000 * .10= $ 77,500.00 (Long Term Financing @ 10%) - 775,000 * .05= $ 38,750.00 (Short Term Financing @ 5%) - Minus financing = $ 83,750 Earnings Before Taxes (EAT) = $ 25,125.00 Earnings After Taxes (EAT) = $ 7,537.50 B: Lear’s earnings after taxes under this financing plan would be $ 19,500.00 Total Assets = 1,350,000.00 Fixed Assets= $ 600,000.00
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Unformatted text preview: Perm. Current Assets= $ 350,000.00 of Temp. current assets= $ 400,000.00 Current Earnings = $ 200,000.00 1,350,000 * .10= $ 135,000.00 (Long Term Financing @ 10%) Earnings Before Taxes (EBT) = $65,000.00 Earnings After Taxes (EAT) = $ 19,500.00 C: Some of the risks and cost considerations associated with each of these alternative financing strategies is that higher finance and interest rates can reduce profits. Additionally, not all businesses can afford the luxury or are in the position of utilizing long term financing as a source of funds....
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