Nighthawk Steel, a manufacturer of specialized tools, has $5,580,000 in assets. Short-term rates are 6 percent. Long-term rates are 8.5 percent. (Note that long-term rates imply a return to any equity). Earnings before interest and taxes are $1,140,000. The tax rate is 25 percent. Assume the term structure of interest rates becomes inverted, with short-term rates going to 11 percent and long-term rates 5.5 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 6-8. Earning after taxes