E $8-2$ Evaluate alternative financing plans

Obj. $1$

Based on the data in Exercise E$8-1,$ discuss factors other than earnings per share that should be considered in evaluating such financing plans.

See Exercise E$8-1$ below.

E $8-1$ Effect of financing on earnings per share

Obj. $1$

BSF Co$.,$ which produces and sells skiing equipment, is financed as follows:

Details

Data relating to financing details of BSF Company shows the following: Bonds payable, $8$ percent $($issued at face amount$)$: $7,500,000$ dollars Preferred $2$ percent stock, $$10$ par: $7,500,000$ dollars Common stock, $$50$ par: $7,500,000$ dollars

Income tax is estimated at $40\%$ of income.

Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is $($a$)$ $$1,000,000,($b$)$ $$3,000,000,$ and $($c$)$ $$4,500,000.$

HIDE ANSWER

Check Figure: $$0\mathrm{.}60$