Interest versus dividend expense Michaels Corporation expects earnings before interest and taxes to be $49,000 for the currentperiod. Assuming a flat ordinary tax rate of 21%, compute the firm's earnings after taxes and earnings available for commonstockholders (earnings after taxes and preferred stock dividends, if any) under the following conditions:a. The firm pays $11,500 in interestb. The firm pays $11,500 in preferred stock dividendsa. Complete the fragment of Michaels Corporation's income statement below to compute the firm's earnings after taxes and earningsavailable for common stockholders under condition (a) (Round to the nearest dollar)

INCOME STATEMENT Income Statement is one of the Important Financial Statement of the Company. Income…

Answered: Interest versus dividend expense…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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6
K Pfd Company has debt with a yield to maturity of 7.01%, a cost of equity of 14.51%, and a cost of preferred stock of 9.92%. The market values of its debt, preferred stock, and equity are $10.3 million, $2.7 million, and $14.6 million, respectively, and its tax rate is 30%. What is this firm's after-tax WACC? Note: Assume that the firm will always be able to utilize its full interest tax shield. Pfd's after-tax WACC is %. (Round to two decimal places.)
A firm’s present market price of the share is Rs 55 and its EPS is Rs 18. The firm is planning to declare 55 percent of this as dividends. If the firm reinvests its retained earnings at the rate of 13 percent, the cost of its equity according to Gordon dividend capitalization model is a. 20 percent b. 40 percent c. 41.55 percent d. 23.85 percent
ABC Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $52.50 a share. The before-tax cost of debt is 7.50% and the tax rate is 40%. The target capital structure consist of debt and 55% common equity. What is the companys WACC if all the equity used is from retained earnings?
Assume ABC Corporation is a multinational company with the following financial information: Market value of equity (E): $500 million Market value of debt (D): $300 million Market value of preferred stock (PS): $50 million Cost of equity (Re): 10% Cost of debt (BTrd): 5% Corporate tax rate (Tc): 25% Cost of preferred stock ( Rps): 8% a. Calculate the WACC for ABC Corporation. Needs to be done in Excel
A firm with sales of $1,000,000, net profits after taxes of $60,000, total assots of $1,500,000, and totol liabilities of $750,000 has a return on equity ot Select one: O a. 15 percent. b. 20 percent. c. 4 percent. O d. 8 percent. e. None of the above
As the chief financial officer of Adirondack Designs, you have the following information: Next year's expected net income after tax but before new financing Sinking-fund payments due next year on the existing debt Interest due next year on the existing debt Common stock price, per share Common shares outstanding Company tax rate $ 37 million $12 million $7 million $26.5 17 million 45% a. Calculate Adirondack's times-interest-earned ratio for next year assuming the firm raises $47 million of new debt at an interest rate of 5 percent b. Calculate Adirondack's times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.0 million c. Calculate next year's earnings per share assuming Adirondack raises the $47 million of new debt d. Calculate next year's times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 1.2 million new shares at $22 a share instead of raising new debt. Note: Do not round…
Compute the WACC of a firm that currently has $1 million in debt and $2 million in equity and $1 million in preferred stock. The current yield to maturity on the firms debt is 2%. Equity holders require a 6% return and preferred stock holders require a 3.8% return. The current tax rate that applies to the firm is 30%. Write your answer as a decimal.
Q.An all-equity company that has a current value $300,000 is considering borrowing $60,000 and using the borrowed funds to repurchase shares. The company can borrow at 5%. Assume all available earnings are immediately distributed to common shareholders and all the M&M assumptions are satisfied except the corporate tax rate is 35%, and investors are subject to an 18% tax rate on equity income and a 25% tax rate on debt income. If the company proceeds with the capital restructuring, what will be the value of the company according to M&M Proposition I with personal and corporate taxes?
Subject:- finance
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Here is some information about Stokenchurch Incorporated: Beta of common stock = 2.0 Treasury bill rate=4% Market risk premium = 8.3% Yield to maturity on long-term debt = 6% Book value of equity = $520 million Market value of equity = $1,040 million Long-term debt outstanding = $1,040 million. Corporate tax rate = 21% What is the company's WACC? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. WACC %

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