Alternative Financing Plans Frey Co. is considering the following alternative fi

Question

Alternative Financing Plans Frey Co. is considering the following alternative financing plans: Plan 1 Plan 2 Issue 10% bonds (at face value) Issue preferred $1 stock, $10 par Issue common stock, $5 par Income tax is estimated at 40% of income. Determine the earnings per share on common stock, assuming that income before bond interest and intome tax is $672,000 Enter answers in dollars and cents, rounding to the nearest cent. Plan 1 $960,000$480,000 -800,000 640,000 960,000 Earnings per share on common stock Plan 2Eamings per share on common stock Check My Work

Explanation / Answer

Plan - 1 Plan - 2 Earnings before bond interest and income tax $672,000 $672,000 Bond Interest $96,000 $48,000 Plan 1 - $960,000 x10%, Plan 2 $480,000 x10%) Balance $576,000 $624,000 Income Tax $230,400 $249,600 Net Income $345,600 $374,400 Dividends on preferred stock $0 $80,000 Earnings available for common stock $345,600 $294,400 No. of common shares           192,000            128,000 Earnings per share on common stock $1.80 $2.30

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.