effect of financing on earnings per share

three different plans for financing a $3,400,000 corporation or under consideration by the organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income:

1. determine the earnings per share of common stock for each plan assuming that the income before bond interest and income tax is $6,800,000. Enter answers in dollars and cents, rounding to two decimal places.

2. determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $3,230,000. Enter answers in dollars and cents, rounding to two decimal places.

3. The principal (advantage/disadvantage) of plan one is that it involves only the issuance of common stock, which does not require a periodic interest payment or return of principal, and a payment of preferred dividends (is/is not) required.

Effect of Financing on Earnings Per Share Three different plans for financing an $3,400,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income: Plan 1 Plan 2 Plan 3 10% Bonds Preferred 10% stock, $40 par $1,700,000 $1,700,000 850,000 850,000 $3,400,000 Common stock, $3.4 par $3,400,000 1,700.000 Total $3,400,000 $3,400,000 Required: 1. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $6,800,000. Enter answers in dollars and cents, rounding to two decimal places. Earnings Per Share on Common Stock Plan 1 4.087 Plan 2 8 X Plan 16 X 2. Determine the samnings per share of common stock for each plan, assuming that the income before bond Interest and income tax is $3,230,000. Enter answers in dollars and cats, rounding to Two dedmal places Check My Work more Check My Woman @ hp 2. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $3,230,000. Enter answers in dollars and cents, rounding to two decimal places. Earnings Per Share on Common Stock Plan 1 2 X Plan 2 4 X Plan 3 7 3. The principal preferred dividends of Plan 1 is that it involves only the issuance of common stock, which does not require a periodic interest payment or return of principal, and a payment of required. Feedback Chewy Work Set up a column for each plan. Remember to take interest, income tax and dividends into consideration Consider the impact on shareholders with each plan. In deciding among financing plans, the effect on earnings per share is often considered. Keep in mind issues of what obligations the firm must pay even during periods of earnings delines Check My Work more Check My Workestering Next hp & 3 5 6 7 8 o W E U