Three different plans for financing a$30,000,000 corporation are under conseideration by itsorganisezs. Under each of the following plans, the securitieswill be issued at their par or face amount, and the income tax rateis estimated at 40% of income.
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plan 1
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plan 2
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Plan 3
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85 bonds
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_
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_
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20,000.00
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preferred $2 stock, $50 par
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_
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20,000.00
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10,000.00
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common stock , $10 par
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40,000.00
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20,000.00
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10,000.00
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Total
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40,000.00
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40,000.00
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40,000.00
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1. Determine for each plan the earnings per share of commonstock, assuming that the income before bond interest and income taxis 20,000.
2. Determine for each plan the earnings per share of commonstock, assuming that the income before bond interest and income taxis $2,600,000.
3. Discuss the advantages and disadvantages of each plan.