Question
In: Accounting
Three different plans for financing a $6,200,000 corporation are under consideration by its organizers. Under each...
Three different plans for financing a $6,200,000 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 | _ | _ | $3,100,000 | ||||
| Preferred 10% stock, $40 par | _ | $3,100,000 | 1,550,000 | ||||
| Common stock, $6.2 par | $6,200,000 | 3,100,000 | 1,550,000 | ||||
| Total | $ 6,200,000 | $ 6,200,000 | $ 6,200,000 | ||||
Required:
1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $12,400,000. Enter answers in dollars and cents, rounding to the nearest cent.
| Earnings Per Share on Common Stock | |
| Plan 1 | $ |
| Plan 2 | $ |
| Plan 3 | $ |
2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $5,890,000. Enter answers in dollars and cents, rounding to the nearest cent.
| Earnings Per Share on Common Stock | |
| Plan 1 | $ |
| Plan 2 | $ |
| Plan 3 | $ |
3. The principal of Plan 1 is that it involves only the issuance of common stock, which does not require a periodic interest payment or return of principal, and a payment of preferred dividends required.
Solutions
ekkarill92 answered 1 year agoRelated Solutions
Three different plans for financing an $7,200,000 corporation are under consideration by its organizers. Under each...
Three different plans for financing an $7,200,000 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
_
_
$3,600,000
Preferred 10% stock, $40 par
_
$3,600,000
1,800,000
Common stock, $7.2 par
$7,200,000
3,600,000
1,800,000
Total
$ 7,200,000
$ 7,200,000
$ 7,200,000
Required:
1. Determine the earnings...
Three different plans for financing an $8,400,000 corporation are under consideration by its organizers. Under each...
Three different plans for financing an $8,400,000 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
_
_
$4,200,000
Preferred 5% stock, $80 par
_
$4,200,000
2,100,000
Common stock, $8.4 par
$8,400,000
4,200,000
2,100,000
Total
$ 8,400,000
$ 8,400,000
$ 8,400,000
Required:
1. Determine the earnings...
Effect of Financing on Earnings Per Share Three different plans for financing an $8,200,000 corporation are...
Effect of Financing on Earnings Per Share
Three different plans for financing an $8,200,000 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
_
_
$4,100,000
Preferred 5% stock, $80 par
_
$4,100,000
2,050,000
Common stock, $8.2 par
$8,200,000
4,100,000
2,050,000
Total
$ 8,200,000
$ 8,200,000...
Effect of Financing on Earnings Per Share Three different plans for financing a $2,800,000 corporation are...
Effect of Financing on Earnings Per Share
Three different plans for financing a $2,800,000 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
_
_
$1,400,000
Preferred 10% stock, $100 par
_
$1,400,000
700,000
Common stock, $2.8 par
$2,800,000
1,400,000
700,000
Total
$2,800,000
$2,800,000
$2,800,000
Round...
Effect of Financing on Earnings Per Share Three different plans for financing an $5,000,000 corporation are...
Effect of Financing on Earnings Per Share
Three different plans for financing an $5,000,000 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
_
_
$2,500,000
Preferred 5% stock, $80 par
_
$2,500,000
1,250,000
Common stock, $5 par
$5,000,000
2,500,000
1,250,000
Total
$ 5,000,000
$ 5,000,000...
Effect of Financing on Earnings Per Share Three different plans for financing an $6,300,000 corporation are...
Effect of Financing on Earnings Per Share
Three different plans for financing an $6,300,000 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
_
_
$3,150,000
Preferred 10% stock, $40 par
_
$3,150,000
1,575,000
Common stock, $6.3 par
$6,300,000
3,150,000
1,575,000
Total
$ 6,300,000
$ 6,300,000...
Effect of Financing on Earnings Per Share Three different plans for financing an $8,500,000 corporation are...
Effect of Financing on Earnings Per Share
Three different plans for financing an $8,500,000 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
_
_
$4,250,000
Preferred 5% stock, $80 par
_
$4,250,000
2,125,000
Common stock, $8.5 par
$8,500,000
4,250,000
2,125,000
Total
$ 8,500,000
$ 8,500,000...
Effect of Financing on Earnings Per Share Three different plans for financing an $7,000,000 corporation are...
Effect of Financing on Earnings Per Share
Three different plans for financing an $7,000,000 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
_
_
$3,500,000
Preferred 5% stock, $80 par
_
$3,500,000
1,750,000
Common stock, $7 par
$7,000,000
3,500,000
1,750,000
Total
$ 7,000,000
$ 7,000,000...
Effect of Financing on Earnings Per Share Three different plans for financing an $2,700,000 corporation are...
Effect of Financing on Earnings Per Share
Three different plans for financing an $2,700,000 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
_
_
$1,350,000
Preferred 5% stock, $80 par
_
$1,350,000
675,000
Common stock, $2.7 par
$2,700,000
1,350,000
675,000
Total
$ 2,700,000
$ 2,700,000...
Effect of Financing on Earnings Per Share Three different plans for financing a $5,100,000 corporation are...
Effect of Financing on Earnings Per Share
Three different plans for financing a $5,100,000 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
_
_
$2,550,000
Preferred 5% stock, $80 par
_
$2,550,000
1,275,000
Common stock, $5.1 par
$5,100,000
2,550,000
1,275,000
Total
$ 5,100,000
$ 5,100,000...
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