Question

Interest versus dividend expense Michael Corporation expects coming before rest and takes to be $52.000 for the current period. Assuming a fat ordinary tax rate of 30%, compute the firm's comings after and earnings for common stockholders earings where and preferred stock vidends any under the following conditions Therm pays $12 300 in interest The firm pays $12.300 in preferred stock dividends Complete the fragment of Michael Corporation's income statement below to compute the firm's earnings athers and carings viable for common stockholders under condition (a) (Round to the nearest EBIT Less interest expense Earnings before tres Less Taxes (30%) Earrings were Les Preferred dividends Camins available for common stockholders b. Complete the fragment of Michael Corporation's income statement below to compute the firm's earnings for taxes and earnings available for common stockholders under condition (Round to the nearest BIT Leser expense Gaming before Les Preferred dividende

Answer 1

Ans: (a) The firm pays $12,300 in Interest - Income Statement under Condition (a) Particulars Amount ($) EBIT S2,000 Less: Interest Expense 12300 Fornings Before Taxes (EBT) 39,700 Less: Taxes @Boy, 1910 Fornings After Taxes (EAT) 27,790 Less: Preferred dividend Earring Available for Common. 27,790 Stockholdes 16) firm pay $12,300 as Preferred stock Dividend Amoont (6) 52,000 Particulars EBIT Less. Interest Expense EBT Less: Taxes @ 301 EAT Less: Preferred Stock Dividend Cornings Available for Common Stock -Holders 52,000 15600 36,400 12300 24,100 1000000 ob Servation : The Cornings Avoilble to common Stock holdes it is more in (o) then in (b) be cause interest is a tan deductible Eapense. Difference in the Eorning being (30% of 12,300) je to effect of interest.