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. the balance will be financed with short-term financing, which 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.

$63,875

Explanation:

Temporary current assets  =Current assets – permanent current assets

                                            =$800,000 – $350,000 = $450,000

Short-term interest expense  will be computed as:-

= 5% [$450,000 + ½ ($350,000)]

= $31,250

Long-term interest expense  will be computed as:-

= 10% [$600,000 + ½ ($350,000)]

= $77,500

Total interest expense is the sum of the two interest expenses:-

= $31,250 + $77,500

= $108,750

Lear Inc Earnings before interest and taxes    =   $200,000

Interest expense                                      = - $ 108,750

Earnings before taxes                                  =   $91,250

Taxes @ 30% rate ($91,250  X30%)                  = - $27,375

Earnings after taxes                                    =   $63,875

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.