Desmond Co. is considering the following alternative financing plans: Plan 1 Plan 2 Issue 10% bonds (at face value) $840,000 $420,000 Issue preferred $1 stock, $10 par 700,000 Issue common stock, $5 par 840,000 560,000 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 $588,000. Enter answers in dollars and cents, rounding to two decimal places. Plan 0.12 X Earnings per share on common stock 9.3 X Earnings per share on common stock Plan 2

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Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.