Desmond Co. is considering the following alternative financing plans: Plan 1Plan 2Issue 5% bonds (at face value)$3,000,000 $1,000,000 Issue preferred $1 stock, $20 par— 3,000,000 Issue common stock, $10 par3,000,000 2,000,000 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 $400,000.

Earnings per share is the earnings of the firm which is available to each outstanding share.…

Answered: Desmond Co. is considering the…

Financial Accounting

14th Edition

ISBN:9781305088436

Author:Carl Warren, Jim Reeve, Jonathan Duchac

Publisher:Carl Warren, Jim Reeve, Jonathan Duchac

Chapter14: Long-term Liabilities: Bonds And Notes

Section: Chapter Questions

Problem 1PEA

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Desmond Co. is considering the following alternative financing plans:

	Plan 1	Plan 2
Issue 5% bonds (at face value)	$3,000,000		$1,000,000
Issue preferred $1 stock, $20 par	—		3,000,000
Issue common stock, $10 par	3,000,000		2,000,000

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 $400,000.

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