Calculations (20 Points)

Elfman 24. Elman Co. is considering the following alternative plans for financing their company:

	Plan I	Plan II
Issue 10% Bonds (at face)	-	$3,000,000
Issue $10 (par value) Common Stock	$4,000,000	$1,000,000

Income tax is estimated at 40% of income.

Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

	Plan I	Plan II
Earnings before bond interest and income tax	$1,000,000	$1,000,000
Deduct: interest on bonds	______________	_____________
Income before income tax	_______________	_____________
Deduct: Income Tax	_______________	______________
Net Income after Income Tax	_______________	_______________
Less: Dividends on Preferred Stock	0	0
Available for Dividends on Common Stock	_______________	______________

Divided by: Shares of Common Stock Outstanding	_______________	______________
Earnings Per Share on Common Stock	_$_______________	__$____________