Nighthawk Steel, a manufacturer of specialized tools, has $4,750,000 in assets. Temporary current assets i Permanent...

 

Transcribed Image Text:

Nighthawk Steel, a manufacturer of specialized tools, has $4,750,000 in assets. Temporary current assets i Permanent current assets Capital assets Total assets $1,050,000 1,600,000 2,100,000 $4,750,000 Short-term rates are 4 percent. Long-term rates are 6.5 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 40 percent. Assume the term structure of interest rates becomes inverted, with short-term rates going to 14 percent and long-term rates 10 percentage points lower than short-term rates. 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 be after taxes? Eor an example of perfectly hedged plans see Figure 6-8. Earning after taxes 429000 Nighthawk Steel, a manufacturer of specialized tools, has $4,750,000 in assets. Temporary current assets i Permanent current assets Capital assets Total assets $1,050,000 1,600,000 2,100,000 $4,750,000 Short-term rates are 4 percent. Long-term rates are 6.5 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 40 percent. Assume the term structure of interest rates becomes inverted, with short-term rates going to 14 percent and long-term rates 10 percentage points lower than short-term rates. 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 be after taxes? Eor an example of perfectly hedged plans see Figure 6-8. Earning after taxes 429000

Answer rating: 100% (QA)

solutio n Long term asset need Financing Short term a... View the full answer