Financed by a combination of common stock

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Reference no: EM131043486

In 2011 Beta Corporation earned gross profits of $840,000.

a. Suppose that it is financed by a combination of common stock and $1.08 million of debt. The interest rate on the debt is 9%, and the corporate tax rate is 35%. How much profit is available for common stockholders after payment of interest and corporate taxes? (Enter your answer in nearest dollars not in millions.)

b. Now suppose that instead of issuing debt Beta is financed by a combination of common stock and $1.08 million of preferred stock. The dividend yield on the preferred is 7% and the corporate tax rate is still 35%. How much profit is now available for common stockholders after payment of preferred dividends and corporate taxes? (Enter your answer in nearest dollars not in millions.)

Reference no: EM131043486

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