Question

Sherlock Homes, a manufacturer of low cost mobile housing, has
$5,000,000 in assets.

Temporary current assets $2,000,000

Permanent current assets 1,550,000

Capital assets 1,450,000

Total assets $5,000,000

Short-term rates are 10 percent. Long-term rates are 15
percent. (Note that long‐term rates imply a return to any equity).
Earnings before interest and taxes are $1,060,000. The tax rate is
20 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 be? For an example of
perfectly hedged plans, see Figure 6-8.

Answer #1

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Sherlock Homes, a manufacturer of low cost mobile housing, has
$5,000,000 in assets.
Temporary current assets
$2,000,000
Permanent current assets
1,550,000
Capital assets
1,450,000
Total assets
$5,000,000
Short-term rates are 10 percent. Long-term rates are 15 percent.
(Note that long‐term rates imply a return to any equity). Earnings
before interest and taxes are $1,060,000. The tax rate is 20
percent.
If long-term financing is perfectly matched (hedged) with long-term
asset needs, and the same is true...

Sherlock Homes, a manufacturer of low cost mobile housing, has
$5,000,000 in assets.
Temporary current assets
$2,000,000
Permanent current assets
1,550,000
Capital assets
1,450,000
Total assets
$5,000,000
Short-term rates are 10 percent. Long-term rates are 15 percent.
(Note that long‐term rates imply a return to any equity). Earnings
before interest and taxes are $1,060,000. The tax rate is 20
percent.
If long-term financing is perfectly matched (hedged) with long-term
asset needs, and the same is true...

Sherlock Homes, a manufacturer of low cost mobile housing, has
$4,950,000 in assets.
Temporary current assets
$1,900,000
Permanent current assets
1,545,000
Capital assets
1,505,000
Total assets
$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...

Colter Steel has $4,800,000 in assets.
Temporary current assets
$
1,600,000
Permanent current assets
1,530,000
Fixed assets
1,670,000
Total assets
$
4,800,000
Short-term rates are 12 percent. Long-term rates are 17 percent.
Earnings before interest and taxes are $1,020,000. The tax rate is
40 percent.
If long-term financing is perfectly matched (synchronized) with
long-term asset needs, and the same is true of short-term
financing, what will earnings after taxes be?

Colter Steel has $5,150,000 in assets.
Temporary current assets
$
2,300,000
Permanent current assets
1,565,000
Fixed assets
1,285,000
Total assets
$
5,150,000
Short-term rates are 7 percent. Long-term rates are 12 percent.
Earnings before interest and taxes are $1,090,000. The tax rate is
20 percent.
If long-term financing is perfectly matched (synchronized) with
long-term asset needs, and the same is true of short-term
financing, what will earnings after taxes be?
Earnings
after taxes?

Colter Steel has $5,150,000 in assets.
Temporary Current Assets: $2,300,000
Permanent Current Assets: 1,565,000
Fixed Assets: 1,285,000
Total Assets: 5,150,000
Short-term rates are 7 percent. Long-term rates are 12 percent.
Earnings before interest and taxes are $1,090,000. The tax rate is
20 percent.
If long-term financing is perfectly matched (synchronized) with
long-term asset needs, and the same is true of short-term
financing, what will earnings after taxes be?

Colter Steel has $5,250,000 in assets.
Temporary current assets $ 2,500,000
Permanent current assets 1,575,000
Fixed assets 1,175,000
Total assets $ 5,250,000
Short-term rates are 9 percent. Long-term rates are 14 percent.
Earnings before interest and taxes are $1,110,000. The tax rate is
40 percent.
If long-term financing is perfectly matched (synchronized) with
long-term asset needs, and the same is true of short-term
financing, what will earnings after taxes be?

Colter Steel has $4,800,000 in assets.
Temporary current assets
$
1,600,000
Permanent current assets
1,530,000
Fixed assets
1,670,000
Total assets
$
4,800,000
Assume the term structure of interest rates becomes inverted,
with short-term rates going to 12 percent and long-term rates 2
percentage points lower than short-term rates. Earnings before
interest and taxes are $1,020,000. The tax rate is 40
percent.
If long-term financing is perfectly matched (synchronized) with
long-term asset needs, and the same is true of short-term...

Date Wireless has the following
assets:
Current assets :
Temporary
$1,150,000
Permanent
1,300,000
Capital
assets
7,750,000
Total assets
$10,200,000
Its operating profit (EBIT) is expected to be $2.5 million. Its
tax rate is 30 percent. Shares are valued $20. Capital structure is
either short-term financing at 5 percent or equity. There is no
long-term debt. (Round the final answers to 2 decimal
places.)
a.
Calculate expected earnings per
share (EPS) if the firm is perfectly hedged.
...

Colter Steel has $5,550,000 in assets.
Temporary
current assets
$
3,100,000
Permanent
current assets
1,605,000
Fixed
assets
845,000
Total
assets
$
5,550,000
Assume the term structure of interest rates becomes inverted,
with short-term rates going to 10 percent and long-term rates 2
percentage points lower than short-term rates. Earnings before
interest and taxes are $1,170,000. The tax rate is 40
percent.
Earnings after taxes =

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