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Sherlock Homes, a manufacturer of low cost mobile housing, has $4,600,000 in assets. Temporary current assets $1,200,000 Permanent current assets 1,510,000 Capital assets 1,890,000 Total
Sherlock Homes, a manufacturer of low cost mobile housing, has $4,600,000 in assets.
Temporary current assets | $1,200,000 | |
Permanent current assets | 1,510,000 | |
Capital assets | 1,890,000 | |
Total assets | $4,600,000 | |
Short-term rates are 8 percent. Long-term rates are 13 percent. (Note that longterm rates imply a return to any equity). Earnings before interest and taxes are $980,000. 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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