Alternative Financing Plans

Desmond Co. is considering the following alternative financing plans:

	Plan 1		Plan 2
Issue 10% bonds (at face value)	$1,600,000		$800,000
Issue preferred $1 stock, $10 par			1,330,000
Issue common stock, $5 par	1,600,000		1,070,000

Income tax is estimated at 40% of income.

Determine the earnings per share of common stock, assuming that income before bond interest and income tax is $480,000.

Enter answers in dollars and cents, rounding to two decimal places.

Plan 1	$fill in the blank 1 Earnings per share on common stock
Plan 2	$fill in the blank 2 Earnings per share on common stock

Effect of Financing on Earnings per Share

Henriksen Co., which produces and sells biking equipment, is financed as follows:

Bonds payable, 10% (issued at face amount)	$200,000
Preferred $1 stock, $10 par	200,000
Common stock, $25 par	200,000

Income tax is estimated at 40% of income.

Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is (a) $76,000, (b) $96,000, and (c) $116,000.

Enter answers in dollars and cents, rounding to two decimal places.

a. Earnings per share on common stock $fill in the blank 1

b. Earnings per share on common stock $fill in the blank 2

c. Earnings per share on common stock $fill in the blank 3