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a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8% Short-term financing

a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8%
Short-term financing currently costs 5 5% Lear’s earnings before interest and taxes are $250,000
Determine Lear’s earnings after taxes under this financing plan. The tax rate is 40%
b. As an alternative, Lear might wish to finance all fixed assets and permanent current assets plus half of its temporary current assets with long-term financing.
The same interest rates apply as in part a. Earnings before interest and taxes will be $250,000
What will be Lear’s earnings after taxes? The tax rate is 40%
c. What are some of the risks and cost considerations associated with each of these alternative financing strategies?

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