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.
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.
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 |
— | 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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