2. Michaels Corporation expects earnings before interest andtaxes to be $50,000

Question

2.     Michaels Corporation expects earnings before interest andtaxes to be $50,000 for this period. Assuming an ordinary tax rate of 40 percent, 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 $12,900 in interest.
b.     The firm pays $12,900 in preferred stock dividends.

b.     The firm pays $12,900 in preferred stock dividends.

Earnings Before Interest and tax 50,000 Less: Interest 12,900 Earnings before tax 37100 Less: Tax (40%) 14840 Earnings after taxes 22,260 Less: Preferred Dividends ? Net Earnings available of Common Stockholders 22260

Explanation / Answer

PART B:

Earnings Before Interest and tax 50000 Less: Interest 0 Earnings before tax 50000 Less: Tax 20000 Net Earnings 30000 Less: Preferred Stock Dividends 12900 Net Earnings available of Common Stockholders 17100

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