XYZ Company is considering the following financing plans. Plan 1Plan 2Plan 3 Bonds, 10% $3,000,000 Preferred stock, $100 par, 1% $2,000,000$1,000,000 Common stock, $10 par$5,000,0003,000,000$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 1Plan 2Plan 3EBIT Interest EBT Taxes Net income Preferred div. Avail. for common Common shares Earnings per share

Formulas: Earnings per share = Net income available to equity share holders / Number of common…

Answered: XYZ Company is considering the…

PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)

6th Edition

ISBN:9781337117005

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 4FPE

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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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