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 (for computation purposes still consider these temporary current assets).           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

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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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 (for computation purposes still consider these temporary current assets).

  

    
  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 after taxes be? (Enter answers in whole dollar, not in million.)

  

Earnings after taxes            $ 

  

b. If short-term interest rates increase to 5 percent when assets are at their lowest level, what will earnings after taxes be? For an example of perfectly hedged plans, see Figure 6–8  (Enter answers in whole dollar, not in million.)

  

Earnings after taxes            $ 519560

 
 
 
 
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