Billco Corporation expects earnings before interest and taxes to be $450,000 for the current tax year....

Billco Corporation expects earnings before interest and taxes to be $450,000 for the current tax year. Using the U.S. corporate flat tax rate of 21%, compute the Billco’s earnings available for common stockholders if the firm pays $25,000 in interest versus $25,000 in preferred stock dividends.

Answers:

A.) $371,000; $347,000

B.) $357,080; $357,080

C.) $335,750; $330,500

D.) $376,040; $352,040

Solutions

Expert Solution

Correct answer: C) $335,750; $330,500

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Please note: Interest payment is tax deductible whereas preferred dividend is not tax deductible.

jeff jeffy answered 1 year ago

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