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mackdoolittle1
24.07.2020 •
Business
Alternative Financing Plans Frey Co. is considering the following alternative financing plans: Plan 1Plan 2 Issue 10% bonds (at face value)$1,440,000 $720,000 Issue preferred $1 stock, $10 par— 1,200,000 Issue common stock, $5 par1,440,000 960,000 Income tax is estimated at 40% of income. Determine the earnings per share on common stock, assuming that income before bond interest and income tax is $1,008,000. Enter answers in dollars and cents, rounding to two decimal places. Plan 1$ Earnings per share on common stock Plan 2$ Earnings per share on common stock
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Ответ:
1st Plan Earning per Share $ 1.80
2nd Plan Earning per Share $ 2.30
The Second Plan provides better earnings per share.
Explanation:
1st Plan:
Income before Interest and taxes 1,008,000
Bonds Payable Interest: (144,000)
Income before taxes 864,000
Income tax expense (345,600)
Net Income 518,400
Quantity of Common Stock:
$ 1,440,000 / $5 = 288,000
Earing per share:
518,400 / 288,000 = $1.80
2nd Plan:
Income before Interest and taxes 1,008,000
Bonds Payable Interest: (72,000)
Income before taxes 936,000
Income tax expense (374,400)
Net Income 561,600
Preferred Shares Dividends (120,000)
Available for common stock 441,600
Quantity of preferred Stock:
$1,200,000 / $10 =120,000 shares
Dividends on Preferred Shares:
120,000 x $1 = 120,000
Quantity of Common Stock:
$ 960,000 / $5 = 192,000
Earing per share:
441,600 / 192,000 = $2.30
Ответ: