Sherlock Homes, a manufacturer of low-cost mobile housing, has $4,650,000 in assets. Temporary current assets Permanent current assets Capital assets $1,030,000 1,560,000 2,060,000 Total assets $4,650,000 Short-term rates are 14 percent. Long-term rates are 10 percent. (Note that long-term rates imply a return to any equity). Earnings before interest and taxes are $990,000. The tax rate is 40 percent. Assume the term structure of interest rates becomes inverted, with short-term rates going to 14 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