What will earnings after taxes

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Question - Sherlock Homes, a manufacturer of low cost mobile housing, has $5,400,000 in assets.

Temporary current assets $2,800,000

Permanent current assets 1,590,000

Capital assets 1,010,000

Total assets $5,400,000

Short-term rates are 12 percent. Long-term rates are 17 percent. (Note that long-term rates imply a return to any equity). Earnings before interest and taxes are $1,140,000. The tax rate is 40 percent.

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: EM132852863

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