Question

Colter Steel has $4,700,000 in assets. Temporary current assets $ 1,400,000 Permanent current assets 1,520,000 Fixed assets 1,780,000 Total assets $ 4,700,000

Assume the term structure of interest rates becomes inverted, with short-term rates going to 11 percent and long-term rates 5 percentage points lower than short-term rates. Earnings before interest and taxes are $1,000,000. The tax rate is 20 percent.

Answer #1

Total Assets = $4,700,000

Value of temporary current assets = $1,400,000

Value of Permanent current assets = $1,520,000

Short term interest rate is 11% and long term interest rate is 6% (5 percentage points lower than short-term rates)

So, Total Interest expenses = ($1,400,000 × 11%) + ($1,520,000 × 6%)

= $154,000 + $91,200

= $245,200.

Total Interest expense is $245,200.

EBIT = $1,000,000

Net Income = (EBIT - Interest Expense) × (1 - tax rate)

= ($1,000,000 - $245,200) × (1 - 20%)

= $754,800 × 80%

= $603,840

Net Income of company is $603,840.

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 =

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...

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
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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 $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?

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