Michaels corporation expects earnings before interest and taxes to be 42,000 for

Question

Michaels corporation expects earnings before interest and taxes to be 42,000 for this period. assuiming an extraordinary tax rate of 35% compute the firm's earning after taces and earnings available for common stockholders under the following conditions: a) the firm pays 12,100 in interest

b) the firm pays 12,100 in preferred stock dividends (ROUND TO THE NEAREST DOLLAR)

EBIT

Less interest expense

earnings before taxes

less taxes 35%

earnings after taxes

less preffered dividends

earnings available for common stockholders

Explanation / Answer

solution :

A .

EBIT $42000

Less interest expense $12100

Earnings before taxes $29900

less taxes 35% $10465

EAT $19435

Less preferred dividend. $0

Earnings available for common stockholders. $19435

B.

EBIT. $42000

Less interest expense $0

earnings before taxes $42000

less taxes 35% $14700

earnings after taxes $27300

less preffered dividends $12100

Earnings available for common stockholders. $15200

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