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Book Name: Principles of Managerial Finance - 180 Day Option, 14th Edition Lawrence J. Gitman P2–5 Interest versus...

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Finance

Book Name: Principles of Managerial Finance - 180 Day Option,14th Edition
Lawrence J. Gitman

P2–5 Interest versus dividendexpense   Michaels Corporation expectsearnings before interest and taxes to be $50,000 for the currentperiod. Assuming an ordinary tax rate of 35%, compute the firm’searnings after taxes and earnings available for common stockholders(earnings after taxes and preferred stock dividends, if any) underthe following conditions:

  1. The firm pays $12,000 in interest.
  2. The firm pays $12,000 in preferred stock dividends.

Please provide me with a detailed calculation for my studypurpose thank you!

Answer & Explanation Solved by verified expert
3.7 Ratings (361 Votes)
a If the firm pays 12000 in interest we shall calculate the Earnings After Tax and Earnings Available for common stockholders as follows Particulars Amount Earnings before    See Answer
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