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Question 21 Currently, Safety Tours has $7.4 million in assets. This is a peak six-month...

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Question 21 Currently, Safety Tours has $7.4 million in assets. This is a peak six-month period. During the other six months temporary current assets drop to $800,000 (for computation purposes still consider these temporary current assets). Temporary current assets Permanent current assets Capital assets Total assets $1,700,000 $2,500,000 $3,200,000 $7,400,000 Short-term rates are 5 percent. Long-term rates are 6 percent. Annual earnings before interest and taxes are $2,080,000. The tax rate is 35 percent. a) If the assets are perfectly hedged throughout the year, what will earnings after taxes be? (7 marks) b) If short-term interest rates increase to 6 percent when assets are at their lowest level, what will earnings after taxes be? (7 marks) For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BI U S Paragraph Arial 10pt v > X? X2 > TTC HI E. A EX + E B (3) i {

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