What will earnings after taxes be

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Sherlock Homes, a manufacturer of low cost mobile housing, has $4,950,000 in assets.

Temporary current assets                  $1,900,000

Permanent current assets,                    545,000

Capital assets,                                   505,000

Total assets                                    $4,950,000

Point 1: Short-term rates are 9 percent. Long-term rates are 14 percent. (Note that long-term rates imply a return to any equity). Earnings before interest and taxes are $1,050,000. The tax rate is 40 percent.

Question 1: 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 after taxes be? For an example of perfectly hedged plans.

Reference no: EM132490689

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