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In 2001 Beta Corporation earned gross profits of $760,000. a. S

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In 2001 Beta Corporation earned gross profits of $760,000.

a. Suppose that it is financed by a combination of common stock and $1 million of debt. The interest rate on the debt is 10 percent, and the corporate tax rate is 35 percent. How much profit is available for common stockholders after payment of interest and corporate taxes?

b. Now suppose instead that Beta is financed by a combination of common stock and $1 million of preferred stock. The dividend yield on the preferred is 8 percent and the corporate tax rate is still 35 percent. How much profit is now available for common stockholders after payment of preferred dividends and corporate taxes?

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