Answered: Frey Co. is considering the following… | bartleby

Financial Accounting

Financial Accounting

15th Edition

ISBN:9781337272124

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter14: Long-term Liabilities: Bonds And Notes

Section: Chapter Questions

Problem 1PEA

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Frey Co. is considering the following alternative financing plans:
Plan 1
Plan 2
Issue 5% bonds (at face value)
$6,000,000
$2,000,000
Issue preferred $1 stock, $20 par
Issue common stock, $25 par
6,000,000
6,000,000
4,000,000
Income tax is estimated at 40% of income.
Determine the earnings per share of common stock, assuming that income before
bond interest and income tax is $800,000.

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