Nighthawk Steel, a manufacturer of specialized tools, has $$5,640,000$ in assets.

Temporary current assets $$1,380,000$

Permanent current assets $1,880,000$

Capital assets $2,380,000$

Total assets $$5,640,000$

Short$-$term rates are $7$ percent. Long$-$term rates are $9\mathrm{.}5$ percent. $($Note that long$$term rates imply a return to any equity$).$ Earnings before interest and taxes are $$1,150,000.$ The tax rate is $25$ percent. Assume the term structure of interest rates becomes inverted, with short$-$term rates going to $12$ percent and long$-$term rates $6$ percentage points lower than short$-$term rates.

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 be after taxes? For an example of perfectly hedged plans, see Figure $68.$