Question

Problem Solving. Type your final answer in the space provided
The following information pertains to SBA Company for year-end 2016.
Earnings before interest and taxes          =         P 3,000,000
Capital structure consists of the following:
      Debts – 1,000 , 15%, P 5,000 value per bond,
      Preferred Shares – 12%, 5,000, P1000 par
      Ordinary equity shares – 10,000 shares , P100 par
Corporate Tax rate – 32%
For 2016, 60% of Earnings after interest and taxes will be distributed as dividends .
Assume that interest, taxes, dividends are paid annually.
a. Compute for the EAIT.
EAIT= PAnswer

b. Compute for the dividends for preferred shares; for common shares.
Preferred Shares= PAnswer

Common Shares= PAnswer

c. How much of the EAIT were added to retained earnings account.
Additional to Retained Earnings= PAnswer

Answer 1

a)
Earnings before interest and taxes	$ 3,000,000.00
Less: Interest on debt ( 5,000 x  1,000 x 15%) =	$    750,000.00
Earnings before taxes =	$ 2,250,000.00
Less: Taxes @ 32%	$    720,000.00
Earning after tax and Interest (EAIT)	$ 1,530,000.00
b)
Total Dividend Paid = $1,530,000 x 60%	$    918,000.00
Preferred Dividend = 5000 x $1000 x 12%	$    600,000.00
Remaining to Common shares	$    318,000.00
c)
Additional to Retained Earnings= $1,530,000 x (1 -60%)	$    612,000.00