Michaels Corporation expects earnings before interest and taxes to be $ 53,000 for this period. Assuming...

Michaels Corporation expects earnings before interest and taxes to be $ 53,000 for this period. Assuming an ordinary tax rate of 40 %, 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 $ 11,900 in interest. b. The firm pays $ 11,900 in preferred stock dividends.

Expert Solution

		a. The firm pays $ 11,900 in interest.	b. The firm pays $ 11,900 in preferred stock dividends.
	EBIT	53,000	53,000
(less)	Interest	-11,900	-
	EBT	41,100	53,000
(less)	Tax @ 40%	-16,440	-21,200
	Earnings after tax	24,660	31,800
(less)	Preferrred stock dividend	-	-11,900
	Earnings available to common stockholders	24,660	19,900

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