XYZ Company is considering the following financing plans. Plan 1Plan 2Plan 3 Bonds, 10% $3,000,000 Preferred stock, $100 par, 1% $2,000,000$1,000,000 Common stock, $10 par$5,000,0003,000,000$1,000,000 $5,000,000$5,000,000$5,000,000 The company has earnings before interest and taxes of $750,000 and assumes a tax rate of 40%. Calculate the earnings per share for each plan.

Plan 1: Earnings before interest and taxes = $750,000 Tax rate = 40% Tax = 750,000 * 40% = $300,000…

Answered: XYZ Company is considering the…

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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XYZ Company is considering the following financing plans.

	Plan 1	Plan 2	Plan 3
Bonds, 10%			$3,000,000
Preferred stock, $100 par, 1%		$2,000,000	$1,000,000
Common stock, $10 par	$5,000,000	3,000,000	$1,000,000
	$5,000,000	$5,000,000	$5,000,000

The company has earnings before interest and taxes of $750,000 and assumes a tax rate of 40%. Calculate the earnings per share for each plan.

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