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Sonbull [250]
3 years ago
11

Interest versus dividend expense Michaels Corporation expects earnings before in- terest and taxes to be $50,000 for the current

period. Assuming an ordinary tax rate of 35%, compute the firm’s earnings after taxes and earnings available for common stockholders (earnings after taxes and preferred stock dividends, if any) under the following conditions: a. The firm pays $12,000 in interest. b. The firm pays $12,000 in preferred stock dividends.
Business
1 answer:
Ganezh [65]3 years ago
7 0

Answer:

a. In case of interest paid = $24,700.

b. In Case Preferred Dividend is Paid = $20,500

Explanation:

Earnings before Interest And Taxes (EBIT) = $50,000

a. In case of interest paid

EBIT = $50,000

Less: Interest = $12,000

Earnings Before Taxes = $50,000 - $12,000 = $38,000

Less: Tax @35% = $38,000 X 0.35 = $13,300

Earnings After Tax =$38,000 - $13,300 = $24,700.

This is the value available for common stock.

b. In Case Preferred Dividend is Paid

EBIT = $50,000

Less: Taxes @ 35 % = $50,000 X 0.35 = $17,500

Earnings After Tax = $50,000 - $17,500 = $32,500

Less: Preference Dividend = $12,000

Earnings available for equity or common stock = $32,500 - $12,000 = $20,500

The difference is of tax benefit on payment of interest as that is taxable and preference dividend is not taxable.

a. In case of interest paid = $24,700.

b. In Case Preferred Dividend is Paid = $20,500

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Nick’s Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would co
ASHA 777 [7]

Answer:

     a. 5 years

     b. Yes they will because the payback period is 5 years.

Explanation:

a. Payback period

First calculate the annual cash inflow:

= Net income + Depreciation

= 66,500 + 28,500

= $95,000

The investment cost was $475,000

Payback period = Investment cost / Annual cash inflow

= 475,000 / 95,000

= 5 years

b. The company will purchase the games because they have a payback period of 5 years.

5 0
2 years ago
On common size balance sheets, Company A's inventory is 8% and Company B's inventory is 14%. What do just these two percentages
uysha [10]

On common-size balance sheets, Company B is better at turning its stock than Company A.The reason, that organization B has an excessive stock turnover ratio is the stock of the employer is properly controlled than the employer A. sales might be much less in agency A.

A balance sheet gives you a photograph of your enterprise's monetary role at a given point in time. along with an earnings declaration and a cash float announcement, a balance sheet can assist enterprise owners to evaluate their organization's financial status.

In financial accounting, a balance sheet is a summary of the economic balances of a character or employer, whether or not it be a sole proprietorship, a business partnership, an organization, a personal limited enterprise, or a different corporation consisting of authorities or now not-for-earnings entity.

A balance sheet affords a picture of a business' fitness at a factor in time. it's far a precis of what the enterprise owns (assets) and owes (liabilities). stability sheets are normally organized at the close of an accounting period together with month-stop, sector-stop, or year-stop.

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7 0
2 years ago
If France had positive net exports last year, then it Group of answer choices sold more abroad than it purchased abroad and had
Snowcat [4.5K]

If France had positive net exports last year, then it (A) sold more abroad than it purchased abroad and had a trade surplus.

<h3>What is trade surplus?</h3>
  • When focused simply on trade effects, a trade surplus indicates that a country's goods are in high demand on the global market, which raises the price of those items and leads to a direct strengthening of the home currency.
  • When exports surpass imports, the trade balance (surplus) is positive.
  • When exports are fewer than imports, the trade balance is negative (deficit).
  • When a country exports more goods than it imports, it has a trade surplus.
  • For example, if China exported $1 trillion in products while importing only $200 billion in goods, it would have an $800 billion trade surplus.

Therefore, if France had positive net exports last year, then it (A) sold more abroad than it purchased abroad and had a trade surplus.

Know more about trade surplus here:

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The complete question is given below:
If France had positive net exports last year, then it

A. sold more abroad than it purchased abroad and had a trade surplus.

B. sold more abroad than it purchased abroad and had a trade deficit.

C. bought more abroad than it sold abroad and had a trade surplus.

D. bought more abroad than it sold abroad and had a trade deficit.

7 0
1 year ago
Nieto Company’s budgeted sales and direct materials purchases are as follows. Budgeted Sales Budgeted D.M. Purchases January $ 2
inn [45]

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Budgeted Sales:

January $ 237,400

February 251,400

March 336,600

Nieto’s sales are 30% cash and 70% credit. Credit sales are collected 10% in the month of sale, 50% in the month following sale, and 36% in the second month following sale; 4% are uncollectible.

Cash collection March:

Cash sales= 336,600*0.3= 100,980

Credit Sales March= (336,600*0.7*0.1)= 23,562

From February= (251,400*0.7*0.5)= 87,990

From January= (237,400*0.7*0.36)= 59,824.8

Total= 272,356.8

4 0
3 years ago
The price of Chive Corp. stock will be either $86 or $119 at the end of the year. Call options are available with one year to ex
marshall27 [118]

Answer and Explanation:

a). Step 1: Calculate the option value at expiration based upon your assumption of a 50% chance of increasing to $119 and a 50% chance of decreasing to $86.

The two possible stock prices are:

S+ = $119 and S– = $86. Therefore, since the exercise price is $85, the corresponding two possible call values are:

Cu= $34 and Cd= $1.

Step 2: Calculate the hedge ratio:

(Cu– Cd)/(uS0– dS0) = (34 – 1)/(119 – 86) = 33/33 = 1

Step 3: Form a riskless portfolio made up of one share of stock and one written calls. The cost of the riskless portfolio is:

(S0– C0) = 97 – C0

and the certain end-of-year value is $86.

Step 4: Calculate the present value of $86 with a one-year interest rate of 5%:

$86/1.05 = $81.90

Step 5: Set the value of the hedged position equal to the present value of the certain payoff:

$97 – C0= $81.90

C0 = $97 - $81.90 = $15.10

b). Step 1: Calculate the option value at expiration based upon your assumption of a 50% chance of increasing to $119 and a 50% chance of decreasing to $86.

The two possible stock prices are:

S+ = $119 and S– = $86. Therefore, since the exercise price is $115, the corresponding two possible call values are:

Cu= $4 and Cd= $0.

Step 2: Calculate the hedge ratio:

(Cu– Cd)/(uS0– dS0) = (4 – 0)/(119 – 86) = 4/33

Step 3: Form a riskless portfolio made up of four shares of stock and thirty three written calls. The cost of the riskless portfolio is:

(4S0– 33C0) = 4(97) – 33C0 = 388 - 33C0

and the certain end-of-year value is $86.

Step 4: Calculate the present value of $86 with a one-year interest rate of 5%:

$86/1.05 = $81.90

Step 5: Set the value of the hedged position equal to the present value of the certain payoff:

$388 – 33C0= $81.90

33C0 = $388 - $81.90

C0 = $306.10 / 33 = $9.28

3 0
3 years ago
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