Nighthawk Steel, a manufacturer of specialized tools, has $5,040,000 in assets. Temporary current assets Permanent current assets Capital assets Total assets $1,180,000 1,680,000 2,180,000 $5,040,000 Short-term rates are 5 percent. Long-term rates are 7.5 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 25 percent. Assume the term structure of interest rates becomes inverted, with short-term rates going to 10 percent and long-term rates 5 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? For an example of perfectly hedged plans. see Figure 6-8. Earning after taxes
Nighthawk Steel, a manufacturer of specialized tools, has $5,040,000 in assets. Temporary current assets Permanent current assets Capital assets Total assets $1,180,000 1,680,000 2,180,000 $5,040,000 Short-term rates are 5 percent. Long-term rates are 7.5 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 25 percent. Assume the term structure of interest rates becomes inverted, with short-term rates going to 10 percent and long-term rates 5 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? For an example of perfectly hedged plans. see Figure 6-8. Earning after taxes
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 5P
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Question
![Nighthawk Steel, a manufacturer of specialized tools, has $5,040,000 in assets.
Temporary current assets
Permanent current assets
Capital assets
Total assets
$1,180,000
1,680,000
2,180,000
$5,040,000
Short-term rates are 5 percent. Long-term rates are 7.5 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 25 percent. Assume the term structure of interest rates becomes inverted,
with short-term rates going to 10 percent and long-term rates 5 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? For an example of perfectly hedged plans. see Figure 6-8
Earning after taxes](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4a1e25a2-f5e8-468f-ae64-00ba734492bc%2F1645a3c1-0c1c-400e-abbe-8b583d0ee567%2Fpas7nuwj_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Nighthawk Steel, a manufacturer of specialized tools, has $5,040,000 in assets.
Temporary current assets
Permanent current assets
Capital assets
Total assets
$1,180,000
1,680,000
2,180,000
$5,040,000
Short-term rates are 5 percent. Long-term rates are 7.5 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 25 percent. Assume the term structure of interest rates becomes inverted,
with short-term rates going to 10 percent and long-term rates 5 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? For an example of perfectly hedged plans. see Figure 6-8
Earning after taxes
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