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

_$_______________

__$____________