A corporation discussed three different plans to finance $4,000,000 toward

A corporation discussed three different plans to finance $4,000,000 toward construction of a new warehouse. Under each of the following plans the securities will be issued at their par or face value amount and the income tax rate is estimated at 25% of income.

PLAN #1 – 4,000,000 Common Stock $10 par

PLAN #2 – 2,000,000 Preferred 10% stock $40 par; 2,000,000 Common stock $10 par

PLAN #3 – 1,000,000 Common stock $10 par; 3,000,000 10% Bonds

Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $800,000.
Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $450,000.
What are the advantages and disadvantages of each plan?

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