Alternative Financing Plans

Alternative Financing Plans - Alternative Financing Plans...

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Alternative Financing Plans Christy Thornton FIN/200 May 30, 2010 Mernoush Banton 14. 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.
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Alternative Financing 2 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. - All fixed assets= $600,000 - Half of its permanent current assets = $175,000 - Long-term financing cost= 10% - Earnings before interest and taxes = $200,000 - Tax rate= 30% Long-term interest cost = $775,000 x 10% = $77,500 Short-term interest expense= $625,000 x 5% = $31,250 Total interest cost = $31,250 +$77,500 = $108,750 Earnings before interest and taxes = $200,000 - $108,750 = $91,250 Earnings after taxes = $91,250 – 30% = $91,250 - $27,375=
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This note was uploaded on 06/26/2010 for the course FIN FIN 200 taught by Professor Banton during the Spring '10 term at University of Phoenix.

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Alternative Financing Plans - Alternative Financing Plans...

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