In 2011 Beta Corporation earned gross profits of $680,000.
a. Suppose that it is financed by a combination of common stock and $1.18 million of debt. The interest rate on the debt is 9%, and the corporate tax rate is 40%. 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 $1.18 million of preferred stock. The dividend yield on the preferred is 7% and the corporate tax rate is still 40%. 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 $