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Plan 1 Plan 2 Plan 3 9% Bonds $40,000,000 Preferred 5% stock, $25 par Common stock, $20 par $40,000,000 20,000,000 $80,000,000 40,000,000 20,000,000 Total $80,000,000 $80,000,000 $80,000,000

Plan 1 Plan 2 Plan 3 9% Bonds $40,000,000 Preferred 5% stock, $25 par Common stock, $20 par $40,000,000 20,000,000 $80,000,000 40,000,000 20,000,000 Total $80,000,000 $80,000,000 $80,000,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Three different plans for financing an $80,000,000 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:

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Instructions
1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $10,000,000.
2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $6,000,000.
3. Discuss the advantages and disadvantages of each plan.

Plan 1 Plan 2 Plan 3 9% Bonds $40,000,000 Preferred 5% stock, $25 par Common stock, $20 par $40,000,000 20,000,000 $80,000,000 40,000,000 20,000,000 Total $80,000,000 $80,000,000 $80,000,000
Transcribed Image Text:Plan 1 Plan 2 Plan 3 9% Bonds $40,000,000 Preferred 5% stock, $25 par Common stock, $20 par $40,000,000 20,000,000 $80,000,000 40,000,000 20,000,000 Total $80,000,000 $80,000,000 $80,000,000
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