Three different plans for financing a $15,000,000 corporationare under consideration by its organizers. Under each of thefollowing plans, the securities will be issued at their par or faceamount, and the income tax rate is estimated at 40% ofincome. Plan1 Plan2 Plan3
12%bonds $6,250,000
Preferred $4 stock, $50par $7,500,000 5,000,000
Common stock, $30par $15,000,000 7,500,000 3,750,000
TOTAL $15,000,000 $15,000,000 $15,000,000
NSTRUCTIONS: 1. Determine for each plan the earnings per share ofcommon stock, assuming that the income before bond interest and income tax is$2,500,000. 2. Determine for each plan the earnings per share ofcommon stock, assuming that the income before bond interest and income tax is$1,500,000. 3. Discuss the advantages and disadvantages of each plan.