Reference no: EM132469868

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.

Question a. Compute for the EAIT.

Earnings before interest and taxes = P 3,000,000

Less: Interest on debt (P 5,000* 1,000* 15%) = P 750,000

Earnings before taxes = P 2,250,000

Less: Corporate taxes @32% (P 2,250,000 * 32%) = P 720,000

Earnings after interest and taxes (EAIT) = P 1,530,000

Question b. Compute for the dividends for preferred shares; for common shares.

Preferred Shares= P

Common Shares= P

Question c. How much of the EAIT were added to retained earnings account.

Additional to Retained Earnings= P