Reference no: EM132593470
Effect of Financing on Earnings Per Share
Three different plans for financing an $2,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income:
Plan 1. Plan 2. Plan 3.
10% Bonds $1,000,000
Preferred 5% stock, $80 par $1,000,000 $500,000
Common stock, $2 par $2,000,000 $1,000,000 $500,000
Total $2,000,000 $2,000,000 $2,000,000
Question 1. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $4,000,000. Enter answers in dollars and cents, rounding to two decimal places.
Question 2. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $1,900,000. Enter answers in dollars and cents, rounding to two decimal places.
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