eBook Show Me How Calculator Print Item Alternative Financing Plans Frey Co. is

Question

eBook Show Me How Calculator Print Item Alternative Financing Plans Frey Co. is considering the following alternative finaning plans: Plan 1 Plan 2 $1,080,000 $540,000 900,000 1,080,000 720,000 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 income tax is $648,000. Enter answers in dollars and cents, rounding to the nearest cent Plan 1 Earnings per share on common stock Plan 2 Earnings per share on common stock

Explanation / Answer

Plan 1 Plan 2 Incone before interest and tax 648000 648000 Less: Interest expense 108000 54000 Income before tax 540000 594000 Less: tax expense 216000 237600 Net income 324000 356400 Less: Preferred Dividends 0 90000 Income for common stockholders 324000 266400 Common shares outstanding 216000 144000 Earnings per share 1.5 1.85 2 Cash 2726006 Discount on bonds payable 273994         Bonds payable 3000000

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