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Nighthawk Steel, a manufacturer of specialized tools, has $5,050,000 in assets. Temporary current assets $2,100,000 Permanent current assets 1,555,000 Capital assets 1,395,000 Total assets $5,050,000
Nighthawk Steel, a manufacturer of specialized tools, has $5,050,000 in assets.
Temporary current assets | $2,100,000 | |
Permanent current assets | 1,555,000 | |
Capital assets | 1,395,000 | |
Total assets | $5,050,000 | |
Short-term rates are 11 percent. Long-term rates are 16 percent. (Note that longterm rates imply a return to any equity). Earnings before interest and taxes are $1,070,000. The tax rate is 30 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? For an example of perfectly hedged plans, see Figure 6-8.
Earnings after taxes $
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