Effect of Financing on Earnings Per Share
Effect of Financing on Earnings Per Share
Three different plans for financing a $6,700,000 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
10% bonds...
Preferred 5% stock, $80 par... __
Common stock, $6.70 par... $6,700,000
Total... 6,700,000
Plan 2
10% bonds... __
Preferred 5% stock, $80 par... $3,350,000
Common stock, $6.70 par... 3,350,000
Total... $...
Plan 3
10% bonds... $3,
Preferred 5% stock, $80 par... 1,675,000
Common stock, $6.70 par... 1,675,000
Total...
1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $13,400,000. Enter answers in dollars and cents, rounding to the nearest cent.
Earnings per share on common stock
Plan 1 _________
Plan 2_________
Plan 3_________
2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $6,365,000. Enter answers in dollars and cents, rounding to the nearest cent.
Earnings per share on common stock
Plan 1_________
Plan 2_________
Plan 3_________
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