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.
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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
XYZ Company is considering the following financing plans.
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Plan 1 |
Plan 2 |
Plan 3 |
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Bonds, 10% |
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$3,000,000 |
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$2,000,000 |
$1,000,000 |
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Common stock, $10 par |
$5,000,000 |
3,000,000 |
$1,000,000 |
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$5,000,000 |
$5,000,000 |
$5,000,000 |
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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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Plan 1 |
Plan 2 |
Plan 3 |
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EBIT |
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Interest |
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EBT |
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Taxes |
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Net income |
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Preferred div. |
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Avail. for common |
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Common shares |
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Earnings per share |
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