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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
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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
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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
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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.
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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
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.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
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Mack Company, HappyDay’s branch, plans to invest $50,000 in land that will produce annual rent revenue equal to 15 percent of the investment, starting on January 1, Year 3. The revenue will be collected in cash at the end of each year, starting December 31, Year 3. Mack can obtain the cash necessary to purchase the land from two sources. Funds can be obtained by issuing $50,000 of 10 percent, five-year bonds at their face amount. Interest due on the bonds is payable on December 31 of each year with the first payment due on December 31, 2021. Alternatively, the $50,000 needed to invest in land can be obtained from equity financing. In this case, the stockholders (holders of the equity) will be paid a $5,000 annual cash dividend. Mack Company is in a 30 percent income tax bracket.
1. Prepare an income statement and statement of cash flows for Mack Company for Year 3 under the two alternative financing proposals (debt financing and equity financing)
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Mack Company, HappyDay’s branch, plans to invest $50,000 in land that will produce annual rent revenue equal to 15 percent of the investment, starting on January 1, Year 3. The revenue will be collected in cash at the end of each year, starting December 31, Year 3. Mack can obtain the cash necessary to purchase the land from two sources. Funds can be obtained by issuing $50,000 of 10 percent, five-year bonds at their face amount. Interest due on the bonds is payable on December 31 of each year with the first payment due on December 31, 2021. Alternatively, the $50,000 needed to invest in land can be obtained from equity financing. In this case, the stockholders (holders of the equity) will be paid a $5,000 annual cash dividend. Mack Company is in a 30 percent income tax bracket.
Prepare an income statement and statement of cash flows for Mack Company for Year 3 under the two alternative financing proposals (debt financing and equity financing).
Write a short memorandum explaining why…
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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.
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On January 1, 2020, Karakaraka Co. started construction of a new office building on January 1, 2020, and moved into the finished building on July 1, 2021. Of the P25,000 total cost of the building, P20,000 was incurred in 2020 evenly throughout the year. The entity’s incremental borrowing rate was 12% throughout 2020, and the total amount of interest incurred was P1,020,000. What amount should be reported as capitalized interest on December 31, 2020?
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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?
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Calculate the capital gains tax in 2021, assuming a capital gains tax of 20%.
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Gabbert’s Corporation expects to have sales of $15 million. Costs other than depreciations are expected to be 77% of sales, and depreciation is expected to be $1.8 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. The federal tax rate is 25%. Interest expense is $210,000.
1. Set up an income statement. What is Gabbert’s expcted net income? Its expected net cash flow?
2. Suppose Congress changed the tax laws so that Gabbert’s depreciation expenses went up by 60%. No changes in operations occurred. What would happen to the reported profit and to net cash flow?
3. Now suppose that Congress changed the tax laws such that, instead of increasing Gabbert’s depreciation, it was reduced by 60%. How would the profit and the net cash flow be affected?
4. If this were your company, would you prefer Congress to cause your depreciation expense to be increased or reduced? Why?
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Intella's current assets total to $20 million versus $10 million of current liabilities, while AWD's current assets are $10 million versus $20
million of current liabilities. Both firms would like to "window dress" their end-of-year financial statements, and to do so they tentatively
plan to borrow $10 million on a short-term basis and to then hold the borrowed funds in their cash accounts. Which of the statements
below best describes the results of these transactions?
OA. The transactions would improve Intella's financial strength as measured by its current ratio but lower AWD's current ratio.
O B. The transactions would lower Intella's financial strength as measured by its current ratio but raise AWD's current ratio.
O C. The transactions would have no effect on the firm' financial strength as measured by their current ratios.
O D. The transactions would lower both firm' financial strength as measured by their current ratios.
O E. The transactions would improve both firms' financial…
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Please show proper steps and explanation thanks!
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Johnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently.1. On June 30, 2021, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $10,000 on the purchase date and the balance in five annual installments of $8,000 on each June 30 beginning June 30, 2022. Assuming that an interest rate of 10% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment?2. Johnstone needs to accumulate sufficient funds to pay a $400,000 debt that comes due on December 31, 2026. The company will accumulate the funds by making five equal annual deposits to an account paying 6% interest compounded annually. Determine the required annual deposit if the first deposit is made on December 31, 2021.3. On January 1, 2021, Johnstone leased an office building. Terms of the lease require Johnstone to make 20 annual lease payments of $120,000 beginning on…
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Muffin's Masonry Incorporated's balance sheet lists net fixed assets as $31 million. The fixed assets could currently be sold for $53
million. Muffin's current balance sheet shows current liabilities of $14.0 million and net working capital of $13.0 million. If all the current
accounts were liquidated today, the company would receive $8.10 million cash after paying the $14.0 million in current liabilities
What is the book value of Muffin's Masonry's assets today and the market value of these assets?
Note: Enter your answers in millions of dollars rounded to 2 decimal places. (i.e., Enter 5,500,000 as 5.50.)
Current assets
Fixed assets
Total
BOOK VALUE MARKET VALUE
(in millions of dollars)
$
0.00 $
0.00
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ABC Co. had these loans outstanding for the year 2020: Specific Loan: P1,000,000 at 10% General Loan P20,000,000 at12%. The company began a self-construction of a building on January 1, 2020 and was completed on December 31, 2020. The following expenditures were made during 2020: January 1:P1,000,000 July 1: P2,000,000 November 1: P3,000,000 Total: P6,000,000. How much is the cost of constructed building on December 31, 2020?
P6,000,000
P6,250,000
P6,280,000
P6,300,000
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ABC Co. had these loans outstanding for the year 2020: Specific Loan: P1,000,000 at 10% General Loan P20,000,000 at12%. The company began a self-construction of a building on January 1, 2020 and was completed on December 31, 2020. The following expenditures were made during 2020: January 1:P1,000,000 July 1: P2,000,000 November 1: P3,000,000 Total: P6,000,000 The cost of constructed building on December 31, 2020 must be
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Muffin’s Masonry, Inc.’s, balance sheet lists net fixed assets as $19 million. The fixed assets could currently be sold for $29 million. Muffin’s current balance sheet shows current liabilities of $8.0 million and net working capital of $7.0 million. If all the current accounts were liquidated today, the company would receive $7.50 million cash after paying the $8.0 million in current liabilities.
What is the book value of Muffin’s Masonry’s assets today and the market value of these assets? (Enter your answer in millions of dollars rounded to 2 decimal places.)
current assets
fixed assets
total
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(please type answer).
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Margaret Daniels has the opportunity to invest $695,000 in a new venture. The projected cash flows from the venture are as follows.
Use Appendix A and Appendix B.
Initial investment
Taxable revenue
Deductible expenses
Return of investment
Before-tax net cash flow
Year 0
$ (695,000)
Year 1
Year 2
Year 3
Year 4
$ 83,500
(10,500)
$ 78,500
(10,500)
$ 68,500
(18,900)
$ 63,500
(18,900)
695,000
$ (695,000)
$ 73,000
$ 68,000
$ 49,600
$ 739,600
Margaret uses a 7 percent discount rate.
Required:
a1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate over the life of the investment is 15 percent.
a2. Should Margaret make the investment?
b1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate over the life of the investment is 20 percent.
b2. Should Margaret make the investment?
c1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate in years 1 and 2 is 10 percent and in years 3 and 4
is 25 percent.
c2. Should…
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Leclerc has borrowed $2.4 million to finance the building of a factory. Construction is expected to take
two years. The loan was drawn down and incurred on 1 January 20X9 and work began on
1 March 20X9. $1 million of the loan was not utilised until 1 July 20X9 so Leclerc was able to invest it
until needed.
Leclerc is paying 8% on the loan and can invest surplus funds at 6%.
Calculate the borrowing costs to be capitalised for the year ended 31 December 20X9 in respect of this
project.
A $130,000
B $192,000
C $100,000
D $162,000
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The Great Company started the construction of a building on March 1, 2020 and finished it on June 30, 2021. You have the following information about the expenditures incurred on the construction in 2020:
March 1
$120,000
April 30
290,000
October 1
340,000
November 1
275,000
The Great company took out a one-year loan of $500,000 on April 1, 2020. The annual interest rate is 6%.
The company’s general borrowings are as follows:
Amount
Annual
interest rate
2-year Note payable, issued on March 1, 2019
$120,000
6%
1-year bank loan taken out on April 1, 2020
210,000
4%
2-year bank loan taken out on October 1, 2018
340,000
3%
Required-
Assuming IFRS, determine the carrying value of the asset under-construction on December 31, 2020.
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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_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_forwardMack Company, HappyDay’s branch, plans to invest $50,000 in land that will produce annual rent revenue equal to 15 percent of the investment, starting on January 1, Year 3. The revenue will be collected in cash at the end of each year, starting December 31, Year 3. Mack can obtain the cash necessary to purchase the land from two sources. Funds can be obtained by issuing $50,000 of 10 percent, five-year bonds at their face amount. Interest due on the bonds is payable on December 31 of each year with the first payment due on December 31, 2021. Alternatively, the $50,000 needed to invest in land can be obtained from equity financing. In this case, the stockholders (holders of the equity) will be paid a $5,000 annual cash dividend. Mack Company is in a 30 percent income tax bracket. 1. Prepare an income statement and statement of cash flows for Mack Company for Year 3 under the two alternative financing proposals (debt financing and equity financing)arrow_forward
- Mack Company, HappyDay’s branch, plans to invest $50,000 in land that will produce annual rent revenue equal to 15 percent of the investment, starting on January 1, Year 3. The revenue will be collected in cash at the end of each year, starting December 31, Year 3. Mack can obtain the cash necessary to purchase the land from two sources. Funds can be obtained by issuing $50,000 of 10 percent, five-year bonds at their face amount. Interest due on the bonds is payable on December 31 of each year with the first payment due on December 31, 2021. Alternatively, the $50,000 needed to invest in land can be obtained from equity financing. In this case, the stockholders (holders of the equity) will be paid a $5,000 annual cash dividend. Mack Company is in a 30 percent income tax bracket. Prepare an income statement and statement of cash flows for Mack Company for Year 3 under the two alternative financing proposals (debt financing and equity financing). Write a short memorandum explaining why…arrow_forwardDiamond 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.arrow_forwardOn January 1, 2020, Karakaraka Co. started construction of a new office building on January 1, 2020, and moved into the finished building on July 1, 2021. Of the P25,000 total cost of the building, P20,000 was incurred in 2020 evenly throughout the year. The entity’s incremental borrowing rate was 12% throughout 2020, and the total amount of interest incurred was P1,020,000. What amount should be reported as capitalized interest on December 31, 2020?arrow_forward
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