9. Preferred stock (S13.2) In 2021, Beta Corporation earned gross profits of $760,000.

a. Suppose that Beta was financed by a combination of common stock and $1 million of debt.

The interest rate on the debt was 10%, and the corporate tax rate in 2021 was 21%. How much profit was available for common stockholders after payment of interest and corporate taxes?

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Chapter 13 An Overview of Corporate Financing 397

b. Now suppose that instead of issuing debt, Beta was financed by a combination of common stock and $1 million of preferred stock. The dividend yield on the preferred was 8%, and the corporate tax rate was still 21%. Recalculate the profit available for common stockholders after payment of preferred dividends and corporate taxes.