In 2011 Beta Corporation earned gross profits of $800,000.
a. Suppose that it is financed by a combination of common stock and $1.04 million of debt. The interest rate on the debt is 8%, 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.)
Profit $
b. Now suppose that instead of issuing debt Beta is financed by a combination of common stock and $1.04 million of preferred stock. The dividend yield on the preferred is 6% 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.)
Profit $