Effect of Financing on Earnings Per Share Three different plans for financing a $5,300,000 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 _ _ $2,650,000 Preferred 10% stock, $100 par _ $2,650,000 1,325,000 Common stock, $4 par $5,300,000 2,650,000 1,325,000 Total $5,300,000 $5,300,000 $5,300,000 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 $1,200,000. Earnings per share of common stock Plan 1 $fill in the blank 1 per share Plan 2 $fill in the blank 2 per share Plan 3 $fill in the blank 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 $780,000. Earnings per share of common stock Plan 1 $fill in the blank 4 per share Plan 2 $fill in the blank 5 per share Plan 3 $fill in the blank 6 per share 3. Complete the tables below regarding advantages and disadvantages of each plan.

1. Dividends on Preferred and Common Stock

   Yukon Bike Corp. manufactures mountain bikes and distributes them through retail outlets in Canada, Montana, Idaho, Oregon, and Washington. Yukon Bike Corp. declared the following annual dividends over a six-year period ending December 31 of each year: Year 1, $28,000; Year 2, $44,000; Year 3, $48,000; Year 4, $60,000; Year 5, $76,000; and Year 6, $140,000. During the entire period, the outstanding stock of the company was composed of 40,000 shares of 2% preferred stock, $65 par, and 50,000 shares of common stock, $1 par.

   Instructions:

   1. Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. Assume that preferred dividends are paid before any common dividends. Round per share amounts to the nearest cent when rounding is required. If an answer is zero, enter "0".

   			Preferred Dividends		Common Dividends
   Year	Total Dividends		Total	Per Share	Total	Per Share
   Year 1	$28,000		$fill in the blank 1	$fill in the blank 2	$fill in the blank 3	$fill in the blank 4
   Year 2	44,000		fill in the blank 5	fill in the blank 6	fill in the blank 7	fill in the blank 8
   Year 3	48,000		fill in the blank 9	fill in the blank 10	fill in the blank 11	fill in the blank 12
   Year 4	60,000		fill in the blank 13	fill in the blank 14	fill in the blank 15	fill in the blank 16
   Year 5	76,000		fill in the blank 17	fill in the blank 18	fill in the blank 19	fill in the blank 20
   Year 6	140,000		fill in the blank 21	fill in the blank 22	fill in the blank 23	fill in the blank 24
   				$fill in the blank 25		$fill in the blank 26

   2. Calculate the average annual dividend per share for each class of stock for the six-year period. Round answers to the nearest cent.

   Average annual dividend for preferred	$fill in the blank 27 per share
   Average annual dividend for common	$fill in the blank 28 per share

   3. Assuming that the preferred stock was sold at $57.50 and common stock was sold at $5.00 at the beginning of the six-year period, calculate the average annual percentage return on initial shareholders' investment, based on the average annual dividend per share (a) for preferred stock and (b) for common stock.

   Round your answers to two decimal places.

   a. Preferred stock	fill in the blank 29 %
   b. Common stock	fill in the blank 30 %