Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Effect of Financing on Earnings Per Share Three different plans for financing a $5,900,000 corporation are under consideration by its organizers. Under each of the

image text in transcribedimage text in transcribed

Effect of Financing on Earnings Per Share Three different plans for financing a $5,900,000 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 $2,950,000 Preferred 10% stock, $100 par $2,950,000 1,475,000 Common stock, $4 par $5,900,000 2,950,000 1,475,000 Total $5,900,000 $5,900,000 $5,900,000 Round the answers to nearest cent. Instructions: 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $1,100,000. Earnings per share of common stock Plan 1 per share Plan 2 $ per share Plan 3 $ per share 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $715,000. 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $715,000. Earnings per share of common stock Plan 1 per share Plan 2 per share Plan 3 per share 3. Complete the tables below regarding advantages and disadvantages of each plan. Plan 1 The advantage of Plan 1 is that The disadvantage is that its EPS is Plan 2 The advantage of Plan 2 is that The disadvantage is that its EPS is Plan 3 The advantage of Plan 3 is that The disadvantage is that its EPS is Effect of Financing on Earnings Per Share Three different plans for financing a $5,900,000 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 $2,950,000 Preferred 10% stock, $100 par $2,950,000 1,475,000 Common stock, $4 par $5,900,000 2,950,000 1,475,000 Total $5,900,000 $5,900,000 $5,900,000 Round the answers to nearest cent. Instructions: 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $1,100,000. Earnings per share of common stock Plan 1 per share Plan 2 $ per share Plan 3 $ per share 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $715,000. 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $715,000. Earnings per share of common stock Plan 1 per share Plan 2 per share Plan 3 per share 3. Complete the tables below regarding advantages and disadvantages of each plan. Plan 1 The advantage of Plan 1 is that The disadvantage is that its EPS is Plan 2 The advantage of Plan 2 is that The disadvantage is that its EPS is Plan 3 The advantage of Plan 3 is that The disadvantage is that its EPS is

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals Of International Financial Accounting And Reporting

Authors: Roger Hussey

1st Edition

9814280232, 9789814280235

More Books

Students also viewed these Accounting questions

Question

plan and structure your literature review;

Answered: 1 week ago

Question

establish an effective note-taking and recording system;

Answered: 1 week ago

Question

identify what you need to read and where to find it;

Answered: 1 week ago