Sher Homes, a manufacturer of low-cost mobile housing, has $4,950,000 in assets. Temporary current assets $1,900,000...

Sher 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 of short-term financing, what will earnings after taxes be?

Expert Solution

jeff jeffy answered 1 year ago

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