Sherlock Homes, a manufacturer of low-cost mobile housing, has $4,500,000 in assets. Temporary current assets Permanent current assets Capital assets $1,000,000 1,500,000 2,000,000 $4,500,000 Total assets Short-term rates are 8 percent. Long-term rates are 13 percent. (Note that long-term rates imply a return to any equity). Earnings before interest and taxes are $960,000. The tax rate is 40 percent. Assume the term structure of interest rates becomes inverted, with short term rates going to 12 percent and long-term rates 4 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