Domestic 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 capital assets.a. Lear wishes to finance all capital 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 taxesunder this financing plan. The tax rate is 30 percent.Earnings after taxesb. As an alternative, Lear might wish to finance all capital assets and permanent current assets plus half of its temporary current assetswith long-term financing. The same interest rates apply as in part a. Earnings before inferest and taxes will be $200,000. What will beLear's earnings after taxes? The tax rate is 30 percent.Earnings after taxesc. This part of the question is not part of your Connect assignment.

Earnings after tax or net income or profit represents a company's leftover funds after paying all…

Answered: Lear Inc. has $800,000 in current…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 8P

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Lear, Inc. has $1,000,000 in current assets, $430,000 of which are considered permanent current assets. In addition, the firm has $680,000 invested in capital assets. a. Lear wishes to finance all capital 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 $280,000. Determine Lear's earnings after taxes under this financing plan. The tax rate is 30 percent. Earnings after taxes b. As an alternative, Lear might wish to finance all capital 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 $280,000. What will be Lear's earnings after taxes? The tax rate is 30 percent. Earnings after taxes c. Not available in Connect. $ $113400
Ohio Quarry Inc. has $20 million in assets. Its expected operating income (EBIT) is $4 million and its income tax rate is 40 percent. If Ohio Quarry finances 20 percent of its total assets with debt capital, the pretax cost of funds is 10 percent. If the company finances 40 percent of its total assets with debt capital, the pretax cost of funds is 15 percent. Round your answers to the questions below to two decimal places. Determine the rate of return on equity (ROE) under the three different capital structures (0, 20, and 40% debt ratios).0% debt ratio: % 20% debt ratio: % 40% debt ratio: % Which capital structure yields the highest expected ROE? yields the highest expected ROE. Determine the ROE under each of the three capital structures (0, 20, and 40% debt ratios) if expected EBIT decreases by 40 percent.0% debt ratio: % 20% debt ratio: % 40% debt ratio: % Which capital structure yields the highest ROE calculated in part c? yields the highest expected ROE.…
Ohio Quarry Inc. has $10 million in assets. Its expected operating income (EBIT) is $4 million and its income tax rate is 40 percent. If Ohio Quarry finances 20 percent of its total assets with debt capital, the pretax cost of funds is 13 percent. If the company finances 40 percent of its total assets with debt capital, the pretax cost of funds is 18 percent. Round your answers to the questions below to two decimal places. Determine the rate of return on equity (ROE) under the three different capital structures (0, 20, and 40% debt ratios).0% debt ratio: % 20% debt ratio: % 40% debt ratio: % Which capital structure yields the highest expected ROE?-Select-0 percent debt and 100 percent equity20 percent debt and 80 percent equity40 percent debt and 60 percent equityItem 4 yields the highest expected ROE. Determine the ROE under each of the three capital structures (0, 20, and 40% debt ratios) if expected EBIT decreases by 30 percent.0% debt ratio: % 20% debt ratio: %…
Ohio Quarry Inc. has $10 million in assets. Its expected operating income (EBIT) is $4 million and its income tax rate is 40 percent. If Ohio Quarry finances 20 percent of its total assets with debt capital, the pretax cost of funds is 13 percent. If the company finances 40 percent of its total assets with debt capital, the pretax cost of funds is 18 percent. Round your answers to the questions below to two decimal places. Determine the percentage change in ROE under each of the three capital structures (that is, debt ratios) as the result of a 30 percent decline in EBIT. Use the minus sign to enter a negative percentage change in ROE if necessary.0% debt ratio: % 20% debt ratio: % 40% debt ratio: %
The Berndt Corporation expects to have sales of $12 million. Costs other thandepreciation are expected to be 75% of sales, and depreciation is expected tobe $1.5 million. All sales revenues will be collected in cash, and costs otherthan depreciation must be paid for during the year. Berndt’s federal-plusstate tax rate is 40%. Berndt has no debt.a. Set up an income statement. What is Berndt’s expected net income? Itsexpected net cash flow?
The cash flow plan associated with a debt financing transaction allowed a company to receive $2,800,000 now in lieu of future interest payments of $196,000 per year for 10 years plus a lump sum of $2,800,000 in year 10. If the company’s effective tax rate is 33%, determine its cost of debt capital (a) before taxes, and (b) after taxes.
Kelly Corporation is considering the issuance of either debt or preferred stock to finance the purchase of a facility costing P1.5 million. The interest rate on the debt is 16 percent. Preferred stock has a dividend rate of 12 percent. The tax rate is 46 percent. REQUIREMENTS: 1. What is the annual interest payment? 2. What is the annual dividend payment? 3. What is the required income before interest and taxes to satisfy the dividend requirement??
Target entered fiscal 2019 with a total capitalization of $21,928 million. In 2019, debt investors received interest income of $885 million. Net income to shareholders was $8,678 million. (Assume a tax rate of 21%.) Calculate the economic value added assuming its cost of capital is 10%.
Diamond Company's cost of debt financing is 10%. Its tax rate is 35%. Diamond has $3,000,000 of debt. Required: Calculate the after-tax cost amount of interest expense.
Al-Biruni Inc. borrowed $10 millions at the beginning of 2022 with an annual interest rate of 9.5%. The EBIT recorded for that year was $2.0 million, and tax percentage for the company was 35%. Calculate the INTEREST EXPENSE for the company for the year 2022?
a) Pavan Limited has made plans for the year 2022-23. It is estimated that the Company will employ total assets of 25,00,000; 30% of assets being financed by debt at an interest cost of 9%p.a. The direct cost for the year are estimated at 15,00,000 and all other operating expenses are estimated at 2,40,000. The sales revenue is estimated at 22,50,000. Tax rate is assumed to be 50%. Required to calculate: (i) Net profit margin (ii)Return on assets
The Malia Corporation had sales in 2019 of $65 million, total asswets of $42 million, and total liabilities of $20 million. The interest rate on th company's debt is 6 percent and its tax rate is 21 percent. The operating profit margin was 12 percent. What were the company's operating profits and net income? What was the operating return on assets and return on equity? Assume that interest must be paid on all of the debt.

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