Screenshot 2024-05-26 232709
.png
keyboard_arrow_up
School
Humber College *
*We aren’t endorsed by this school
Course
BFIN 250
Subject
Finance
Date
May 28, 2024
Type
png
Pages
1
Uploaded by PrivateSkunk3150
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 taxes under this financing plan. The tax rate is 30 percent. Earnings after taxes $163875| @ 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 $200,000. What will be Lear’s earnings after taxes? The tax rate is 30 percent. Earnings after taxes $149875| @ c. This part of the question is not part of your Connect assignment. Explanation
Discover more documents: Sign up today!
Unlock a world of knowledge! Explore tailored content for a richer learning experience. Here's what you'll get:
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Related Questions
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
arrow_forward
Lear Incorporated has $900,000 in current assets, $400,000 of which are considered permanent current assets. In addition, the firm
has $700,000 invested in fixed assets.
a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8 percent. The
balance will be financed with short-term financing, which currently costs 5 percent. Lear's earnings before interest and taxes are
$300,000. Determine Lear's earnings after taxes under this financing plan. The tax rate is 30 percent.
Earnings after taxes
arrow_forward
Lear Incorporated has $820,000 in current assets, $360,000 of which are considered permanent current assets. In addition, the firm has $620,000 invested in fixed assets.
Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 9 percent. The balance will be financed with short-term financing, which currently costs 5 percent. Lear’s earnings before interest and taxes are $220,000. Determine Lear’s earnings after taxes under this financing plan. The tax rate is 30 percent.
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 and the balance with short-term financing. The same interest rates apply as in part a. Earnings before interest and taxes will be $220,000. What will be Lear’s earnings after taxes? The tax rate is 30 percent.
arrow_forward
Lear Incorporated has $810,000 in current assets, $355,000 of which are considered permanent current assets. In addition, the firm
has $610,000 invested in fixed assets.
a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8 percent. The
balance will be financed with short-term financing, which currently costs 4 percent. Lear's earnings before interest and taxes are
$210,000. Determine Lear's earnings after taxes under this financing plan. The tax rate is 40 percent.
Earnings after taxes
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 and the balance with short-term financing. The same interest rates apply as in part a. Earnings before
interest and taxes will be $210,000. What will be Lear's earnings after taxes? The tax rate is 40 percent.
Earnings after taxes
arrow_forward
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: %…
arrow_forward
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.
arrow_forward
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.…
arrow_forward
Give Answer Of Accounting Question
arrow_forward
ABC Company obtained a loan of $100,000 at 10% annual interest rate on January 1, 2022. The loan was used to finance a project that qualifies for capitalization of borrowing costs. The company incurs $2,000 in loan processing fees and $1,500-in legal fees related to the loan. The project is completed on December 31, 2022. The weighted average cost of capital of ABC Company is 12%.
Compute the amount of borrowing costs to be capitalized and the amount to be expensed in the income statement for the year ended December 31, 2022.
arrow_forward
Judy farm's year-end 2021 balance sheet lists current assets of $436,800, fixed assets of $551,200, current liabilities of $418,200, and long-term debt of $317,700. Tax rate is 25%, and Judy's costs of debt and equity are 8% and 7%, respectively. What is Judy's weighted average cost of capital?
arrow_forward
.A corporation has decided to use borrowed capital to finance a portion of an equipment purchase. The equipment will be partially financed by
borrowing $40,000 on a 2-year contract at 5% interest compounded annually, with the loan to be repaid in two equal EOY $21,512.20
installments.
Complete the table below (inputting a similar table, with related work shown above or below, is suggested).
Payment
BOY
EOY
Year
Total
Interest Principal
Balance
Balance
$40,000
$21,512.20
2
$21,512.20
Totals
arrow_forward
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??
arrow_forward
The statement of financial position as of December 31, 2020, for Taube Corporation follows:
(all amounts in thousands)
Assets
Liabilities and Shareholders' Equity
Current assets
$62,000
Current liabilities
$25,000
Non-current assets
100,000
Long-term liabilities
45,000
Shareholders' equity
92,000
Total liabilities and
Total assets
$162,000
shareholders' equity
$162,000
The company's management is evaluating a couple of options to finance the acquisition of new equipment with a cost of $33 million.
Taube has a cash balance of $20 million as of December 31, 2020. Determine the debt to equity ratio and net debt as a
percentage of total capitalization ratio. Assume that only the company's long-term liabilities are interest bearing. (Round
answers to 2 decimal places, e.g. 1.25.)
:1
Debt to Equity
:1
Net Debt as a Percentage of Total Capitalization
eTextbook and Media
blo cemi-annually.
arrow_forward
PQR Corporation is considering the following alternative plans of financing for raising$4,000,000:
The following additional information is available for PQR Corporation:
Earnings before bond interest and income taxes (EBIT) are $9,000,000.
The tax rate is 35%.
All bonds or stocks are issued at their par values.
Interest is payable at the end of each year.
Required:
Which plan should company choose & why (i.e. Explain the rationale behind selecting the plan)? Provide all the detailed calculations.
arrow_forward
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
arrow_forward
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?
arrow_forward
Your company pays 8.76% on short-term debt, 6.31% on long-term debt, and 8.66% on any additional long-term debt it raises through its AFN program.
If your company currently has $51.50 million in short-term debt, $550.00 million in long-term debt, and plans to raise $100.00 million AFN, what will the total interest expense be for the year?
Note: your answer should be in millions of dollars.
arrow_forward
D. Luke Company is indeed of P3,375,00 to finance its building expansion program. Luke is
currently negotiating a loan with Metro Bank which requires the company to maintain a
compensating balance of 5% of the loan principal on deposit in a current account at the
bank. Luke Inc. currently maintains a balance P50,000 in its current account . The current
account earns interest of 4% per annum; the interest rate on the loan is 12% per
annum.
Questions:
Based on the above data, answer the following
A. What is the principal amount of the loan?
a. P3,375,000
b. P3,325,000
c. P3,500,000
d. P3,480,000
41
B. What is the effective interest rate on the loan
a.8%
c.12.30%
b.12.91%
d. 12%
arrow_forward
SEE MORE QUESTIONS
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Financial Accounting
Accounting
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Related Questions
- 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. $ $113400arrow_forwardLear Incorporated has $900,000 in current assets, $400,000 of which are considered permanent current assets. In addition, the firm has $700,000 invested in fixed assets. a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8 percent. The balance will be financed with short-term financing, which currently costs 5 percent. Lear's earnings before interest and taxes are $300,000. Determine Lear's earnings after taxes under this financing plan. The tax rate is 30 percent. Earnings after taxesarrow_forwardLear Incorporated has $820,000 in current assets, $360,000 of which are considered permanent current assets. In addition, the firm has $620,000 invested in fixed assets. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 9 percent. The balance will be financed with short-term financing, which currently costs 5 percent. Lear’s earnings before interest and taxes are $220,000. Determine Lear’s earnings after taxes under this financing plan. The tax rate is 30 percent. 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 and the balance with short-term financing. The same interest rates apply as in part a. Earnings before interest and taxes will be $220,000. What will be Lear’s earnings after taxes? The tax rate is 30 percent.arrow_forward
- Lear Incorporated has $810,000 in current assets, $355,000 of which are considered permanent current assets. In addition, the firm has $610,000 invested in fixed assets. a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8 percent. The balance will be financed with short-term financing, which currently costs 4 percent. Lear's earnings before interest and taxes are $210,000. Determine Lear's earnings after taxes under this financing plan. The tax rate is 40 percent. Earnings after taxes 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 and the balance with short-term financing. The same interest rates apply as in part a. Earnings before interest and taxes will be $210,000. What will be Lear's earnings after taxes? The tax rate is 40 percent. Earnings after taxesarrow_forwardOhio 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: %…arrow_forwardThe 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.arrow_forward
- 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.…arrow_forwardGive Answer Of Accounting Questionarrow_forwardABC Company obtained a loan of $100,000 at 10% annual interest rate on January 1, 2022. The loan was used to finance a project that qualifies for capitalization of borrowing costs. The company incurs $2,000 in loan processing fees and $1,500-in legal fees related to the loan. The project is completed on December 31, 2022. The weighted average cost of capital of ABC Company is 12%. Compute the amount of borrowing costs to be capitalized and the amount to be expensed in the income statement for the year ended December 31, 2022.arrow_forward
- Judy farm's year-end 2021 balance sheet lists current assets of $436,800, fixed assets of $551,200, current liabilities of $418,200, and long-term debt of $317,700. Tax rate is 25%, and Judy's costs of debt and equity are 8% and 7%, respectively. What is Judy's weighted average cost of capital?arrow_forward.A corporation has decided to use borrowed capital to finance a portion of an equipment purchase. The equipment will be partially financed by borrowing $40,000 on a 2-year contract at 5% interest compounded annually, with the loan to be repaid in two equal EOY $21,512.20 installments. Complete the table below (inputting a similar table, with related work shown above or below, is suggested). Payment BOY EOY Year Total Interest Principal Balance Balance $40,000 $21,512.20 2 $21,512.20 Totalsarrow_forwardKelly 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??arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTFinancial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
- Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Financial Accounting
Accounting
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning