Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 20 Aug 2017 My Price 6.00

plans for financing

PR 12-1b   Effect of financing on earnings per share

Three different plans for financing an $80,000,000 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

9% Bonds                                                                                             —                                         —                   $40,000,000

 

Preferred 5% stock, $25 par

$40,000,000                         20,000,000

 

Common stock, $20 par                                      $80,000,000                     40,000,000                                                                                      20,000,000 Total           $80,000,000                                                                                      $80,000,000                     $80,000,000

                                                                   

 

Instructions

1.     Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $10,000,000.

2.     Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $6,000,000.

3.                                Discuss the advantages and disadvantages of each plan.

 

Answers

Maurice Tutor
(5)
Status NEW Posted 20 Aug 2017 08:08 PM My Price 6.00

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