Alternative Financing Plans

Frey Co. is considering the following alternative financing plans:

Plan 1 Plan 2

Issue 10% bonds (at face value) $1,040,000  $520,000

Issue preferred $1 stock, $10 par—  860,000

Issue common stock, $5 par 1,040,000  700,000 

Income tax is estimated at 40% of income.

Determine the earnings per share on common stock, assuming that income before bond interest and income tax is $312,000.

Plan 1 $______Earnings per share on common stock

Plan 2 $______ Earnings per share on common stock