Reference no: EM132469868
The following information pertains to SBA Company for year-end 2016.
Earnings before interest and taxes = P 3,000,000
Capital structure consists of the following:
Debts - 1,000 , 15%, P 5,000 value per bond,
Preferred Shares - 12%, 5,000, P1000 par
Ordinary equity shares - 10,000 shares , P100 par
Corporate Tax rate - 32%
For 2016, 60% of Earnings after interest and taxes will be distributed as dividends .
Assume that interest, taxes, dividends are paid annually.
Question a. Compute for the EAIT.
Earnings before interest and taxes = P 3,000,000
Less: Interest on debt (P 5,000* 1,000* 15%) = P 750,000
Earnings before taxes = P 2,250,000
Less: Corporate taxes @32% (P 2,250,000 * 32%) = P 720,000
Earnings after interest and taxes (EAIT) = P 1,530,000
Question b. Compute for the dividends for preferred shares; for common shares.
Preferred Shares= P
Common Shares= P
Question c. How much of the EAIT were added to retained earnings account.
Additional to Retained Earnings= P