Jones Corporation currently has 200,000 shares of $10 par common stock outstanding. The company wishes to raise
$4,000,000 to build a new warehouse to improve distribution. It is considering 4 different financing options.
Option 1: Issue 400,000 new shares of common stock at par value.
Option 2: Issue 40,000 new shares of $100 par preferred stock with a $7 annual dividend.
Option 3: Issue $4,000,000 new bonds payable paying 8% interest
Option 4: Issue 200,000 new shares of common stock and $2,000,000 new bonds payable
paying interest at 8%.
Instructions: Calculate the earnings per share for the common shareholder under each
of the financing options above. Consider each scenario independently. Assume the following:
Operating Profits (EBIT)	$3,000,000
The company does not have any current interest expense (before considering options above).
Marginal Tax Rate	35%
	Option	Option	Option	Option
	#1	#2	#3	#4
Operating Profits	3,000,000	3,000,000	3,000,000	3,000,000
Less: Interest Expense
Earnings Before Taxes
Less: Tax Expense
Net Income
Less: Preferred Dividend
Income Available to Common Shareholders
Number of shares of common stock
EPS