Sherlock Homes, a manufacturer of low cost mobile housing, has $4,500,000 in assets. Temporary current assets .....

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Sherlock Homes, a manufacturer of low cost mobile housing, has $4,500,000 in assets.

Temporary current assets ..... . .. .. .. . ... . ... .$1,000,000
Permanent current assets ...............................1,500,000
Capital assets .................. ...............................2,000,000
Total assets ....................................................$4,500,000
Short-term rates are 8 percent. Long-term rates are 13 percent. Earnings before interest and taxes are $960,000. The tax rate is 40 percent.
If long-term financing is perfectly matched (hedged) with long-term asset needs, and the same is true of short-term financing, what will earnings after taxes be?

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Foundations of Financial Management

ISBN: 978-1259024979

10th Canadian edition

Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta

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