XYZ Company is considering the following financing plans.   Plan 1 Plan 2 Plan 3     Bonds, 10%     $3,000,000   Preferred stock, $100 par, 1%   $2,000,000 $1,000,000   Common stock, $10 par $5,000,000 3,000,000 $1,000,000     $5,000,000 $5,000,000 $5,000,000       The company has earnings before interest and taxes of $750,000 and assumes a tax rate of 40%. Calculate the earnings per share for each plan.     Plan 1 Plan 2 Plan 3 EBIT       Interest       EBT       Taxes       Net income       Preferred div.       Avail. for common       Common shares       Earnings per share

Question

XYZ Company is considering the following financing plans.

 

Plan 1

Plan 2

Plan 3

 

 

Bonds, 10%

 

 

$3,000,000

 

Preferred stock, $100 par, 1%

 

$2,000,000

$1,000,000

 

Common stock, $10 par

$5,000,000

3,000,000

$1,000,000

 

 

$5,000,000

$5,000,000

$5,000,000

 

 

 

The company has earnings before interest and taxes of $750,000 and assumes a tax rate of 40%. Calculate the earnings per share for each plan.

 

 

Plan 1

Plan 2

Plan 3

EBIT

 

 

 

Interest

 

 

 

EBT

 

 

 

Taxes

 

 

 

Net income

 

 

 

Preferred div.

 

 

 

Avail. for common

 

 

 

Common shares

 

 

 

Earnings per share

 

 

 

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