Alternative financing plansFrey co. is considering the following alternative financing plans:   Plan 1 Plan 2 Issue 5% bonds (at face value) $6,000,000 $2.000,000 Issue preferred $1 stock. $20 par - 6,000,000 Issue common stock. $25 par 6,000,000 4,000,000 Income tax is estimated at 40% of income.Determine the earnings per share of common stock, assuming thatincome before bond interest and income tax is $800,000.

Question

Alternative financing plans
Frey co. is considering the following alternative financing plans:

  Plan 1 Plan 2
Issue 5% bonds (at face value) $6,000,000 $2.000,000
Issue preferred $1 stock. $20 par - 6,000,000
Issue common stock. $25 par 6,000,000 4,000,000

Income tax is estimated at 40% of income.
Determine the earnings per share of common stock, assuming that
income before bond interest and income tax is $800,000.

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