ACCOUNTING
PR14-1A Three different plans for financing a $10,000,000 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
10%bonds= Plan1= blank, Plan2=blank, Plan3=$5,000,000
Preferred 10% stock,$40par Plan1=blank Plan2=$5,000,000 Plane3=2,500,000
Common stock,$10par= Plan1=$10,000,000 Plan2=5,000,000 Plan3=2,500,000
Total=Plan1=10,000,000 Plan2=10,000,000 Plan3=10,000,000
Required:
1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $2,000,000.
2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is 950,000.
3. Discuss advantages and disadvantages of each plan.
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