Effect of Financing on Earnings Per Share Three different plans for financing a $5,900,000 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 Plan 2 Plan 3 10% bonds $2.950,000 Preferred 10% stock, $100 par $2,950,000 1,475,000 Common stock, $4 par $5,900,000 2,950,000 1,475,000 Total $5,900,000 $5,900,000 $5,900,000 Round the answers to nearest cent. Instructions: 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $1,100,000. Earnings per share of common stock Plan 1 per share Plan 2 per share Plan 3 per share 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $715,000. Earnings per share of common stock Plan per share Plan 2 per share Plan 3 per share 3. Complete the tables below regarding advantages and disadvantages of each plan. Plan 1 The advantage of Plan 1 is that The disadvantage is that its EPS is Plan 2
Effect of Financing on Earnings Per Share Three different plans for financing a $5,900,000 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 Plan 2 Plan 3 10% bonds $2.950,000 Preferred 10% stock, $100 par $2,950,000 1,475,000 Common stock, $4 par $5,900,000 2,950,000 1,475,000 Total $5,900,000 $5,900,000 $5,900,000 Round the answers to nearest cent. Instructions: 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $1,100,000. Earnings per share of common stock Plan 1 per share Plan 2 per share Plan 3 per share 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $715,000. Earnings per share of common stock Plan per share Plan 2 per share Plan 3 per share 3. Complete the tables below regarding advantages and disadvantages of each plan. Plan 1 The advantage of Plan 1 is that The disadvantage is that its EPS is Plan 2
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Chapter 8
Effect of Financing on Earnings Per Share
Three different plans for financing a $5,900,000 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
Plan 2
Plan 3
10% bonds
$2,950.000
Preferred 10% stock, $100 par
$2,950,000
1,475,000
Common stock, $4 par
$5,900,000
2,950,000
1,475,000
Total
$5,900,000
$5,900,000
$5,900,000
Round the answers to nearest cent.
Instructions:
1. Determine for each plan the earnings per share of common
stock, assuming that the income before bond interest and
income tax is $1,100,000.
Earnings per share of common stock
Plan 1
per share
Plan 2
per share
Plan 3
per share
2. Determine for each plan the earnings per share of common
stock, assuming that the income before bond interest and
income tax is $715,000.
Earnings per share of common stock
Plan 1
per share
Plan 2
per share
Plan 3
per share
3. Complete the tables below regarding advantages and
disadvantages of each plan.
Plan 1
The advantage of Plan 1 is that
The disadvantage is that its EPS is
Plan 2
The advantage of Plan 2 is that
The disadvantage is that its EPS is
Plan 3
The advantage of Plan 3 is that
The disadvantage is that its EPS is](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa84f4618-86b2-4a5b-a65b-3fceba435a29%2F8396f324-817c-4a09-8f9d-7f908ab6edff%2Fanaw0m7_processed.png&w=3840&q=75)
Transcribed Image Text:Chapter 8
Effect of Financing on Earnings Per Share
Three different plans for financing a $5,900,000 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
Plan 2
Plan 3
10% bonds
$2,950.000
Preferred 10% stock, $100 par
$2,950,000
1,475,000
Common stock, $4 par
$5,900,000
2,950,000
1,475,000
Total
$5,900,000
$5,900,000
$5,900,000
Round the answers to nearest cent.
Instructions:
1. Determine for each plan the earnings per share of common
stock, assuming that the income before bond interest and
income tax is $1,100,000.
Earnings per share of common stock
Plan 1
per share
Plan 2
per share
Plan 3
per share
2. Determine for each plan the earnings per share of common
stock, assuming that the income before bond interest and
income tax is $715,000.
Earnings per share of common stock
Plan 1
per share
Plan 2
per share
Plan 3
per share
3. Complete the tables below regarding advantages and
disadvantages of each plan.
Plan 1
The advantage of Plan 1 is that
The disadvantage is that its EPS is
Plan 2
The advantage of Plan 2 is that
The disadvantage is that its EPS is
Plan 3
The advantage of Plan 3 is that
The disadvantage is that its EPS is
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