Question: Frey Co. is considering the following alternative financing plans: __________________________ Plan 1 _ Plan 2 Issue 5% bonds (at face value) ........... $6,000,000 ..... $2,000,000

Frey Co. is considering the following alternative financing plans:
__________________________________ Plan 1 _________ Plan 2
Issue 5% bonds (at face value) ........... $6,000,000 ..... $2,000,000
Issue preferred $1 stock, $20 par ............. - ............ 6,000,000
Issue common stock, $25 par ............. 6,000,000 ........ 4,000,000
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 $800,000.

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