Matching Asset Mix and Financing Plans
Winfrey Diet Food Corp. has $4,500,000 in assets
Temporary current assets $1,000,000
Permanent current assets 1,500,000
Fixed Assets 2,000,000
Total Assets 4,500,000
Short-term rate are 8 percent. Long-term rates are 13 percent Earnings before interest and taxes are 960,000. 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?