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Currently, Atlas Tours has $5.64 million in assets. This is a peak six-month period. During the other six months temporary current assets drop to...
Currently, Atlas Tours has $5.64 million in assets. This is a peak six-month period. During the other six months temporary current assets drop to $400,000.6
Temporary current assets$1,230,000
Permanent current assets1,860,000
Capital assets2,250,000
Total assets$5,640,000
Short-term rates are 4 percent. Long-term rates are 5 percent. Annual earnings before interest and taxes are $1,110,000. The tax rate is 38 percent.
a.If the assets are perfectly hedged throughout the year, what will earnings be after taxes?
b.
If short-term interest rates increase to 5 percent when assets are at their lowest level, what will earnings be after taxes?
