Sherlock Homes, a manufacturer of low-cost mobile housing, has $5,300,000 in assets. Temporary current assets Permanent current assets Capital assets $1,160,000 1,820,000 2,320,000 Total assets $5,300,000 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 $1,120,000. 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