Colter Steel has $5,000,000 in assets. Temporary current assets $ 2,000,000 Permanent current assets 1,550,000 Fixed assets 1,450,000 Total assets $ 5,000,000 Assume the term structure of interest rates becomes inverted, with short-term rates going to 11 percent and long-term rates 3 percentage points lower than short-term rates. Earnings before interest and taxes are $1,060,000. The tax rate is 20 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?

Colter Steel has $5,000,000 in assets. Temporary current assets $ 2,000,000 Permanent current assets 1,550,000 Fixed assets 1,450,000 Total assets $ 5,000,000 Assume the term structure of interest rates becomes inverted, with short-term rates going to 11 percent and long-term rates 3 percentage points lower than short-term rates. Earnings before interest and taxes are $1,060,000. The tax rate is 20 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?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 5P

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