Alternative Financing Plans

Brower Co. is considering the following alternative financing plans:

Plan 1 Plan 2

Issue 10% bonds (at face value) $4,000,000 $2,500,000

Issue preferred $2.50 stock, $25 par 3,000,000

Issue common stock, $10 par 4,000,000 2,500,000

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 $2,000,000.

Enter answers in dollars and cents, rounding to the nearest whole cent.

Plan 1: $ Earnings per share on common stock

Plan 2: $ Earnings per share on common stock