aj.9 Alternative Financing PlansDesmond Co. is considering the following alternative financing plans:Plan 1Plan 1$840,000Plan 2Plan 2Issue 10% bonds (at face value)Issue preferred $1 stock, $10 parIssue common stock, $5 parIncome 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 $420,000.Enter answers in dollars and cents, rounding to two decimal places.1.80 X Earnings per share on common stock0.52 X Earnings per share on common stock840,000$420,000700,000560,0001₂

EPS stands for Earnings per Share. It is the ratio formula used to determine the earnings of the…

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Accounting

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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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Question

aj.9

Alternative Financing Plans
Desmond Co. is considering the following alternative financing plans:
Plan 1
Plan 1
$840,000
Plan 2
Plan 2
Issue 10% bonds (at face value)
Issue preferred $1 stock, $10 par
Issue common stock, $5 par
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 $420,000.
Enter answers in dollars and cents, rounding to two decimal places.
1.80 X Earnings per share on common stock
0.52 X Earnings per share on common stock
840,000
$420,000
700,000
560,000
1₂

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