Three plants for financing a $20,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount and the income tax rate is estimated at 30%.
Plan 1 Plan 2 Plan 3
9 % Bonds ------ ------- $10,000,000
6 % Preferred Stock , $100 par ------ $10,000,000 5,000,000
Common Stock, $10 par $20,000,000 10,000,000 5,000,000
Total $20,000,000 $20,000,000 $20,000,000
It is estimated that income before interest and taxes will be $5,000,000.
INSTRUCTIONS:
Determine for each plan, the expected net income and the earnings per share on common stock.