In 20X0, Hamilton Corporation had earnings before taxes and interest of $4,247 million. Long-term debt was $12,000

Question:

In 20X0, Hamilton Corporation had earnings before taxes and interest of $4,247 million. Long-term debt was $12,000 million. The company had no preferred stock outstanding, although 10 million shares were authorized.

Suppose $6,000 million of preferred stock with a dividend rate of 10% had been issued instead of $6,000 million of the long-term debt. The debt had an effective interest rate of 6%. Assume the income tax rate is 40%.

Compute net income and net income attributable to common shareholders under

(a) The current situation with $12,000 million of long-term debt and no preferred stock,

(b) The assumed situation with $6,000 million of preferred stock and $6,000 million of long-term debt.

Corporation
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