# Question: In Problem 12 assume the term structure of interest rates

In Problem 12, assume the term structure of interest rates becomes inverted, with short-term rates going to 11 percent and long-term rates 5 percentage points lower than short-term rates.

In Problem 12,

Temporary current assets ...... $1,000,000

Permanent current assets ...... 2,000,000

Fixed assets ........... 1,200,000

Total assets ............ $4,200,000

Short-term rates are 8 percent. Long-term rates are 13 percent. Earnings before interest and taxes are $996,000. The tax rate is 40 percent.

If all other factors in the problem remain unchanged, what will earnings after taxes be?

In Problem 12,

Temporary current assets ...... $1,000,000

Permanent current assets ...... 2,000,000

Fixed assets ........... 1,200,000

Total assets ............ $4,200,000

Short-term rates are 8 percent. Long-term rates are 13 percent. Earnings before interest and taxes are $996,000. The tax rate is 40 percent.

If all other factors in the problem remain unchanged, what will earnings after taxes be?

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