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What is the profit available for common stock holders

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Reference no: EM133013092

Question - In 2011, Beta Corporation earned gross profits of 760,000.

a. Suppose it is financed by a combination of common stock and 1 million of debt. The interest rate on the debt is 10%, corporate tax rate is 35%. What is the profit available for common stockholders?

b. Now, suppose if the firm decides to not issue debt, rather finance itself by a combination of common stock and 1 million of preferred stock. The dividend on the preferred stock being 8% and the tax rate at 35%, what is the profit available for common stock holders? Assume the firm pays off dividend to preferred stock holders immediately.

Reference no: EM133013092

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