Three different plans for financing a $40,000,000 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 ---- ---- $20,000,000 Preferred $2.50 stock, $50 par---- $20,000,000 10,000,000 Common stock, $25 par *$40,000,000 20,000,000 10,000,000 Total $40,000,000 $40,000,000 40,000,000 Instructions: 1. Determine for each plan the earnings per share of common stock, assumin g that the income before bond interest and income tax is $6,000,000. 2. Determine for each plan the earnings per share of common stock, assumin g that the income before bond interest and income tax is $3,200,000. 3. Discuss the advantages and disadvantages of each plan. this is what I came up with: Plan 1 Plan 2 Plan 3 Earnings before bond interest and income tax $6,000,000 $6,000,000 $6,000,000 Bond interest 0 2,000,000 1,000,000 Balance 6,000,000 4,000,000 5,000,000 Income Tax 2,400,000 1,600,000 2,000,000 Net Income 3,600,000 2,400,000 3,000,000 Dividends on preferred stock 0 0 0 Earnings available for common stock 3,600,000 2,400,000 3,000,000 Number of common shares 40,000,000 20,000,000 40,000,000 Earnings per share on common stock .09 .12 .075