Desmond Co. is considering the following alternative financing plans: Plan 1 Plan 2 Issue 5% bonds (at face value) $3,000,000 $1,000,000 Issue preferred $1 stock, $20 par — 3,000,000 Issue common stock, $10 par 3,000,000 2,000,000 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 $400,000.
Desmond Co. is considering the following alternative financing plans: Plan 1 Plan 2 Issue 5% bonds (at face value) $3,000,000 $1,000,000 Issue preferred $1 stock, $20 par — 3,000,000 Issue common stock, $10 par 3,000,000 2,000,000 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 $400,000.
Financial Accounting
14th Edition
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Carl Warren, Jim Reeve, Jonathan Duchac
Chapter14: Long-term Liabilities: Bonds And Notes
Section: Chapter Questions
Problem 1PEA
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Desmond Co. is considering the following alternative financing plans:
Plan 1 | Plan 2 | |||
Issue 5% bonds (at face value) | $3,000,000 | $1,000,000 | ||
Issue |
— | 3,000,000 | ||
Issue common stock, $10 par | 3,000,000 | 2,000,000 |
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 $400,000.
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