Alternative Financing PlansFrey Co. is considering the following alternative financing plans: Plan 1Plan 2Issue 5% bonds (at face value)$6,000,000 $2,000,000 Issue preferred $1 stock, $20 par— 6,000,000 Issue common stock, $25 par6,000,000 4,000,000 Income tax is estimated at 40% of income.Determine the earnings per share of common stock, assuming income before bond interest and income tax is $800,000.Enter answers in dollars and cents, rounding to two decimal places.

Preferred dividend = No. of Preferred stock x rate of dividend per share = ($6,000,000 / $20) x $1…

Answered: Frey Co. is considering the following…

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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Alternative Financing Plans

Frey Co. is considering the following alternative financing plans:

	Plan 1	Plan 2
Issue 5% bonds (at face value)	$6,000,000		$2,000,000
Issue preferred $1 stock, $20 par	—		6,000,000
Issue common stock, $25 par	6,000,000		4,000,000

Income tax is estimated at 40% of income.

Determine the earnings per share of common stock, assuming income before bond interest and income tax is $800,000.

Enter answers in dollars and cents, rounding to two decimal places.

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