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Unformatted text preview: Need a financial expert for this example. Show Calculations 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. a) Fixed Asset = $600,000 Permanent Current Asset= $350,000 Non-Permanent current Asset= $450,000 Total Asset financed through long term debt = $600,000+350,000*50% = $775,000 Interest on Long term debt= $775,000*10%= $77,500 Total Asset financed through short term debt =$450,000+350,000*50%= $625,000 Interest on short term debt= $625,000*5%=$31,250 Earning Before Interest and Tax.....................$200,000 Less: Interest on Long term debt.....................(77,500)Less: Interest on Long term debt....
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- Spring '08
- Finance, ........., Generally Accepted Accounting Principles, Earnings before Interest