Currently, Atlas Tours has $5.4 million in assets. This is a peak six-month period. During the other six months temporary current assets drop to $400,000.

Temporary current assets..........................$1,200,000
Permanent current assets ...........................1,800,000
Capital assets . . . . . . .......... . .. .. .. . ....... .2,400,000
Total assets . .............................................$5,400,000
Short-term rates are 4 percent. Long-term rates are 5 percent. Annual earnings before interest and taxes are $1 ,080 ,000. The tax rate is 38 percent.
a. If the assets are perfectly hedged throughout the year, what will earnings be after taxes?
b. If short-term interest rates increase to 5 percent when assets are at their lowest level, what will earnings be after taxes?