Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 5P
Related questions
Question
![Nighthawk Steel, a manufacturer of specialized tools, has $4,950,000 in assets.
Temporary current assets
Permanent current assets
Capital assets
Total assets
$1,900,000
1,545,000
1,505,000
$4,950,000
Short-term rates are 9 percent. Long-term rates are 14 percent. (Note that long-term rates imply a return to any equity). Earnings before
interest and taxes are $1,050,000. The tax rate is 40 percent.
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 after taxes bé? For an example of perfectly hedged plans, see Figure 6-8.
Earnings after taxes](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0d2de0bd-0718-472f-80be-d1ff34d0595b%2Feb31e39c-020d-4f7d-bab6-e4b8289eded0%2Fbx3kofh_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Nighthawk Steel, a manufacturer of specialized tools, has $4,950,000 in assets.
Temporary current assets
Permanent current assets
Capital assets
Total assets
$1,900,000
1,545,000
1,505,000
$4,950,000
Short-term rates are 9 percent. Long-term rates are 14 percent. (Note that long-term rates imply a return to any equity). Earnings before
interest and taxes are $1,050,000. The tax rate is 40 percent.
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 after taxes bé? For an example of perfectly hedged plans, see Figure 6-8.
Earnings after taxes
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