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Sherlock Homes, a manufacturer of low-cost mobile housing, has $4,900,000 in assets. Temporary current assets Permanent current assets Capital assets $1,880,000 1,660,000 2,160,000 Total assets
Sherlock Homes, a manufacturer of low-cost mobile housing, has $4,900,000 in assets. Temporary current assets Permanent current assets Capital assets $1,880,000 1,660,000 2,160,000 Total assets 54,900,000 Short-term rates are 12 percent. Long-term rates are 8 percent. (Note that long-term rates imply a return to any equity Earnings before Interest and taxes are $1,040,000. 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 thedged) 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
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