accounting 163

accounting 163

Three different plans for financing a $6,400,000 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 _   _   $3,200,000  
Preferred 10% stock, $40 par _   $3,200,000   1,600,000  
Common stock, $6.4 par $6,400,000   3,200,000   1,600,000  
  Total $ 6,400,000   $ 6,400,000   $ 6,400,000  

Required:

1.  Determine for each plan the earnings per share of common stock, assuming that the income before A form of an interest-bearing note used by corporations to borrow on a long-term basis.bond interest and income tax is $12,800,000. Enter answers in dollars and cents, rounding to the nearest cent.

  The profitability ratio of net income available to common shareholders to the number of common shares outstanding.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 $6,080,000. 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 advantage

  • advantage
  • disadvantage

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
is not

  • is
  • is not

required.

 
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