Find what will earnings after taxes be

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Sherlock Homes, a manufacturer of low cost mobile housing, has $4,750,000 in assets.

Temporary current assets 1,500,000

Permanent current assets 1,525,000

Capital assets 1,725,000

Total assets $4,750,000

Short-term rates are 11 percent. Long-term rates are 16 percent. (Note that long-term rates imply a return to any equity). Earnings before interest and taxes are $1,010,000. The tax rate is 30 percent.

Problem 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?

Reference no: EM132735350

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