Effect PR 12-1A Three different plans for financing an $18,000. by its organizers. Under each of the following plans, the securities will be E or face amount, and the income tax rate is estimated at 40% of income: Plan 1 Plan 2 Plan 3 8% Bonds $ 9,000,000 4,500,000 ebl noiroo $ 9,000,000 Preferred 4% stock, $20 par Common stock, $10 par $18,000,000 $18,000,000 9,000,000 $18,000,000 4,500,000 $18,000,000 Total na that the
Effect PR 12-1A Three different plans for financing an $18,000. by its organizers. Under each of the following plans, the securities will be E or face amount, and the income tax rate is estimated at 40% of income: Plan 1 Plan 2 Plan 3 8% Bonds $ 9,000,000 4,500,000 ebl noiroo $ 9,000,000 Preferred 4% stock, $20 par Common stock, $10 par $18,000,000 $18,000,000 9,000,000 $18,000,000 4,500,000 $18,000,000 Total na that the
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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![PR 12-1A Effect of financing on earnings per share
Three different plans for financing an $18,000,000 corporation are under consideratio
by its organizers. Under each of the following plans, the securities will be issued at their
nar or face amount, and the income tax rate is estimated at 40% of income:
Plan 1
Plan 2
Plan 3
8% Bonds
$ 9,000,000
Preferred 4% stock, $20 par
Common stock, $10 par
$ 9,000,000
9,000,000
$18,000,000
4,500,000
$18,000,000
$18,000,000
4,500,000
$18,000,000
Total
Instructions
1. Determine the earnings per share of common stock for each plan, assuming that the
income before bond interest and income tax is $2,100,000.
2. Determine the earnings per share of common stock for each plan, assuming that the
income before bond interest and income tax is $1,050,000.
3.
Discuss the advantages and disadvantages of each plan.
OBJ. 2, 3](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9eb0d6fd-d24b-42cd-b4cf-314f847e9c3a%2F1e0d7996-e2bb-41c7-88bb-2442bcca9e6a%2Ffvygl0p_processed.jpeg&w=3840&q=75)
Transcribed Image Text:PR 12-1A Effect of financing on earnings per share
Three different plans for financing an $18,000,000 corporation are under consideratio
by its organizers. Under each of the following plans, the securities will be issued at their
nar or face amount, and the income tax rate is estimated at 40% of income:
Plan 1
Plan 2
Plan 3
8% Bonds
$ 9,000,000
Preferred 4% stock, $20 par
Common stock, $10 par
$ 9,000,000
9,000,000
$18,000,000
4,500,000
$18,000,000
$18,000,000
4,500,000
$18,000,000
Total
Instructions
1. Determine the earnings per share of common stock for each plan, assuming that the
income before bond interest and income tax is $2,100,000.
2. Determine the earnings per share of common stock for each plan, assuming that the
income before bond interest and income tax is $1,050,000.
3.
Discuss the advantages and disadvantages of each plan.
OBJ. 2, 3
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