Currently, Atlas Tours has $5.4 million in assets. This is a peak six-month period. During the other six months temporary current assets drop to $400,000.

Temporary current assets$1,200,000

Permanent current assets1,800,000

Capital assets2,400,000

Total assets$5,400,000

Short-term rates are 4 percent. Long-term rates are 5 percent. Annual earnings before interest and taxes are $1,080,000. The tax rate is 38 percent.

a.If the assets are perfectly hedged throughout the year, what will earnings be after taxes?

b.

If short-term interest rates increase to 5 percent when assets are at their lowest level, what will earnings be after taxes?