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    Matching Asset Mix and Financing Plans

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    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?

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    If the long term financing is for permanent assets, then the total financing will be ...

    Solution Summary

    The solution explains how to calculate the after tax earnings if the asset mix is matched with the financing plan