Three different plans for financing a $200,000,000 corporation are under consideration by its organizers. Under each of
Question:
Three different plans for financing a $200,000,000 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.
1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $30,000,000. Enter answers in dollars and cents, rounding to the nearest whole cent.
Earnings per share on common stock
Plan 1 $
Plan 2 $
Plan 3 $
2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $16,000,000. Enter answers in dollars and cents, rounding to the nearest whole cent.
Earnings per share on common stock
Plan 1 $
Plan 2 $
Plan 3 $
3. Discuss the advantages and disadvantages of each plan.
plan 1 plan 2 plan3
11% bonds --- ---- 100,000,000
preferred 5%,$40par --- 100,000,000 50,000,000
common stock $25par 200,000,000 100,000,000 50,000,000
total 200.000.000 200,000,000 200.000.000
Expert Answer:
11 bonds preferred 5 40pa common stock 25p total Option1 EBIT Less Bond Int EBT Less Tax 40 PAT Less ... View the full answer
