Question
Interest versus dividend expenseMichaels Corporation expects earnings before interest and taxes to be $43,000 for the current period. Assuming a flat ordinary tax rate of
Interest versus dividend expenseMichaels Corporation expects earnings before interest and taxes to be $43,000 for the current period. Assuming a flat ordinary tax rate of 30%, compute the firm's earnings after taxes and earnings available for common stockholders (earnings after taxes and preferred stock dividends, if any) under the following conditions:
a. The firm pays$ 11,700 in interest.
b. The firm pays$11,700 in preferred stock dividends.
Complete the fragment of Michaels Corporation's income statement below to compute the firm's earnings after taxes and earnings available for common stockholders under condition (a).(Round to the nearest dollar.)
| EBIT | $ |
|
| Less: Interest Expense |
| |
| Earnings before taxes | $ |
|
| Less: Taxes (23%) |
|
|
| Earnings after taxes | $ |
|
| Less: Preferred dividends |
|
|
| Earnings available for common stockholders | $ |
|
b. Complete the fragment of Michaels Corporation's income statement below to compute the firm's earnings after taxes and earnings available for common stockholders under condition(b).(Round to the nearest dollar.)
| EBIT | $ |
|
| Less: Interest expense |
|
|
| Earnings before taxes | $ |
|
| Less: Taxes (23%) |
|
|
| Earnings after taxes | $ |
|
| Less: Preferred dividends |
|
|
| Earnings available for common stockholders | $ |
|
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