WEEK 5 ASSIGNMENT - 1 WEEK 5 INDIVIDUAL FINANCING PLANS...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 WEEK 5 INDIVIDUAL FINANCING PLANS SANDY EDWARDS FIN/200 FEBRUARY 12, 2012 JAMES BOXMA
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 WEEK 5 INDIVIDUAL FINANCING PLANS 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 cost 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. $800,000 - $350,000 = $450,000 Short-term interest expense = 5% [$450,000 + ½ ($350,000)] = 5% ($625,000) = $31,250 Long-term interest expense = 10% [$600,000 + ½ ($350,000)] = 10% ($775,000) = $77,500 Total interest expense = $31,250 + $77,500 = $108,750 Earnings before interest and taxes $200,000 Interest expense $180,750 Earnings before taxes $ 91,250 Taxes (30%) $ 27,375 Earnings after taxes
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/08/2012 for the course FIN 200 taught by Professor Williams during the Spring '08 term at University of Phoenix.

Page1 / 4

WEEK 5 ASSIGNMENT - 1 WEEK 5 INDIVIDUAL FINANCING PLANS...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online