Colter steel has $5,650,000 in assets. temporary current assets $ 3,300,000 permanent current assets 1,615,000 fixed assets 735,000 total assets $ 5,650,000 assume the term structure of interest rates becomes inverted, with short-term rates going to 14 percent and long-term rates 4 percentage points lower than short-term rates. earnings before interest and taxes are $1,190,000. the tax rate is 30 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?

$345,100

Explanation:

Interest on short term financing = Short term liability × short term interest rate

= 3,300,000 x 14%

 = $462,000

Interest on Long term borrowing = Long term liability × Long term interest rate

= (1,615,000 + 735,000) × 10%

= $235,000

Total interest expense = $462,000 + $235,000

                                       = $697,000

EBT = EBIT - interest expense

       = $1,190,000 - $697,000

       = $493,000

Net income = EBT - [email protected]%

                    = $493,000 - $147,900

                    = $345,100

Therefore net income or earnings after taxes is $345,100.

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