Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations. Common stock: It refers to a security issued in a form of certificate and implies the right of ownership of an investor over a portion of company’s earnings and assets. Earnings per Share: It is a portion of profit that is earned by each common stock. Formula: Earnings per share = Net income − Preferred dividends Number of common shares outstanding To Determine: Earnings per share of common stock.

Question

Simonelli Co. is considering the following alternative financing plans: Plan 1 Plan 2 Issue 8% bonds (at face value) $5,000,000 4,000,000 Issue preferred $2.00 stock, $20 par — 2,000,000 Issue common stock, $25 par 5,000,000 4,000,000 Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming income before bond interest and income tax is $1,000,000.

Answer 1

Question

Chapter 12, Problem 12.1APE

To determine

Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.

Common stock: It refers to a security issued in a form of certificate and implies the right of ownership of an investor over a portion of company’s earnings and assets.

Earnings per Share: It is a portion of profit that is earned by each common stock.

Formula:

Earnings per share=Net income −Preferred dividends Number of common shares outstanding

To Determine: Earnings per share of common stock.

Expert Solution & Answer

Trending nowThis is a popular solution!

See solution

Check out sample textbook solution

Students have asked these similar questions

Simonelli Co. is considering the following alternative financing plans: Plan 1 Plan 2 Issue 8% bonds (at face value) $5,000,000 4,000,000 Issue preferred $2.00 stock, $20 par — 2,000,000 Issue common stock, $25 par 5,000,000 4,000,000 Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming income before bond interest and income tax is $1,000,000.

Alternative Financing Plans Frey Co. is considering the following alternative financing plans: Plan 1 $1,760,000 Issue 10% bonds (at face value) Issue preferred $1 stock, $10 par Issue common stock, $5 par Income tax is estimated at 40% of income. Determine the earnings per share on common stock, assuming that income before bond interest and income tax is $528,000. Enter answers in dollars and cents, rounding to two decimal places. Plan 1 2.4 X Earnings per share on common stock 4.2 X Earnings per share on common stock Plan 2 $ S Plan 2 1,760,000 $880,000 1,460,000 1,180,000

Alternative Financing Plans Desmond Co. is considering the following alternative financing plans: Plan 1 Plan 1 $960,000 Issue 10% bonds (at face value) Issue preferred $1 stock, $10 par Issue common stock, $5 par 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 $576,000. Enter answers in dollars and cents, rounding to two decimal places. Earnings per share on common stock Earnings per share on common stock Plan 2 Plan 2 960,000 $480,000 800,000 640,000