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Three different plans for financing a $7,400,000 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 40% of income. Plan 1 Plan 2 Plan 3 10% bonds $3,700,000 Preferred 10% stock, $100 par $3,700,000 1,850,000 Common stock, $7.4 par $7,400,000 3,700,000 1,850,000 Total $7,400,000 $7,400,000 $7,400,000 Round the answers to nearest cent. Instructions: 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $14,800,000. Earnings per share of common stock Plan 1 $ per share Plan 2 $1 per share Plan 3 $4 per share 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $7,030,000. Earnings per share of common stock Plan 1 24 per share Plan 2 $4 per share Plan 3 $ per share

Three different plans for financing a $7,400,000 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 40% of income. Plan 1 Plan 2 Plan 3 10% bonds $3,700,000 Preferred 10% stock, $100 par $3,700,000 1,850,000 Common stock, $7.4 par $7,400,000 3,700,000 1,850,000 Total $7,400,000 $7,400,000 $7,400,000 Round the answers to nearest cent. Instructions: 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $14,800,000. Earnings per share of common stock Plan 1 $ per share Plan 2 $1 per share Plan 3 $4 per share 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $7,030,000. Earnings per share of common stock Plan 1 24 per share Plan 2 $4 per share Plan 3 $ per share

Financial Accounting
Financial Accounting
15th Edition
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter14: Long-term Liabilities: Bonds And Notes
Section: Chapter Questions
Problem 1PEB: Brower Co. is considering the following alternative financing plans: Income tax is estimated at 40%...
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Three different plans for financing a $7,400,000 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 40% of income. Plan 1 Plan 2 Plan 3 10% bonds $3,700,000 Preferred 10% stock, $100 par $3,700,000 1,850,000 Common stock, $7.4 par $7,400,000 3,700,000 1,850,000 Total $7,400,000 $7,400,000 $7,400,000 Round the answers to nearest cent. Instructions: 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $14,800,000. Earnings per share of common stock Plan 1 $ per share Plan 2 $1 per share Plan 3 $4 per share 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $7,030,000. Earnings per share of common stock Plan 1 24 per share Plan 2 $4 per share Plan 3 $ per share
Transcribed Image Text:Three different plans for financing a $7,400,000 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 40% of income. Plan 1 Plan 2 Plan 3 10% bonds $3,700,000 Preferred 10% stock, $100 par $3,700,000 1,850,000 Common stock, $7.4 par $7,400,000 3,700,000 1,850,000 Total $7,400,000 $7,400,000 $7,400,000 Round the answers to nearest cent. Instructions: 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $14,800,000. Earnings per share of common stock Plan 1 $ per share Plan 2 $1 per share Plan 3 $4 per share 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $7,030,000. Earnings per share of common stock Plan 1 24 per share Plan 2 $4 per share Plan 3 $ per share
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