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Nighthawk Steel, a manufacturer of specialized toois, has \\( \\$ 5,040,000 \\) in assets. Short-term...

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Accounting

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Nighthawk Steel, a manufacturer of specialized toois, has \\( \\$ 5,040,000 \\) in assets. Short-term rates are 5 percent. Long-term rates ore 7.5 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 25 percent. Assume the term structure of interest rates becomes inverted, with short-term rates going to 10 percent and long-term rates 5 percentage points lower than short-term fates. 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 be after taxes? For an example of perfectly hedged plans. See Figure 6-8. Earning after taxes

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