Lear, Inc. has $800,000 is current assets, $300,000 of which are considered permanent current assets.
In addition, the firm has $600,000 in fixed assets.
A. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8%.
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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