Question
Sherlock Homes, a manufacturer of low cost mobile housing, has $5,350,000 in assets. Temporary current assets $2,700,000 Permanent current assets 1,585,000 Capital assets 1,065,000 Total
Sherlock Homes, a manufacturer of low cost mobile housing, has $5,350,000 in assets.
Temporary current assets $2,700,000
Permanent current assets 1,585,000
Capital assets 1,065,000
Total assets $5,350,000
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 $1,130,000. The tax rate is 30 percent.
If long-term financing is perfectly matched (hedged) with long-term asset needs, and the same is true of short-term financing, what will earnings after taxes be?
Earnings after taxes ___________$
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