Financing is perfectly matched with long-term asset needs

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Reference no: EM131868956

Colter Steel has $5,250,000 in assets.

Temporary current assets $ 2,500,000

Permanent current assets 1,575,000

Fixed assets 1,175,000

Total assets $ 5,250,000

Assume the term structure of interest rates becomes inverted, with short-term rates going to 10 percent and long-term rates 4 percentage points lower than short-term rates. Earnings before interest and taxes are $1,110,000. The tax rate is 40 percent.

If long-term financing is perfectly matched (synchronized) with long-term asset needs, and the same is true of short-term financing, what will earnings after taxes be?

Reference no: EM131868956

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