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    Matching asset mix and financing plan

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    Remington Steele has $4,200,000 in assets. Temporary current assets equal $1,000,000. Permanent current assets equal $2,000,000. Fixed assets equal $1,200,000. Total assets equal $4,200,000.

    Short-term rates are 8%. Long-term rates are 13%. Earnings before interest and taxes are $996,000. The tax rate is 40%. 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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    Solution Preview

    Long term assets = permanent current assets + fixed assets = 2,000,000+1,200,000=3,200,000
    Short term assets = ...

    Solution Summary

    The solution explains how to calculate the earnings after tax under matching asset mix and financing plan