Question

ke: Practice! Alternative financing riaus Alternative Financing Plans Frey Co. is considering the following alternative financing plans: Plan 1 $960,000 Issue 10% bonds (at face value) Plan 2 $480,000 800,000 Issue preferred $1 stock, $10 par Issue common stock, $5 par 960,000 640,000 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 $384,000 Enter answers in dollars and cents, rounding to two decimal places. Earnings per share on common stock Earnings per share on common stock Submit Answer Try Another Version

Answer 1

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ARS: Part-1 Amount in $ plan 1 $10.90 Eevening per share on Common Stour. plana $10.95 Earening per Share on common stovi working Plan-1 Plan-2 Issued commen Stous $5 par : $ 960000 $ 640000 Namber of Commen Stous : 192000 128000 issued preferred $1 Stock $10 par: - $ 800.000 Number of preferred stock i. 50000 rasse fermed stock dividend (4104200) : - 10% w dn.come before bond interest and on income tau .. $ 384,000 ($ 96000) $384000 ($48000) u Bond Interest (960000 X 104) (480.000 X 104) (i) Income before tam Ci-): $288000 (1) Tan @.404.691-08 ($115,200) ♡ Income after talle : $172,800 $336000 ($ 134400) $ 201,600

(#80000) (Vi) prefenned dividend 7800000 A 107) (vii) Earning for common Stou : $172800 $ 121600 128,000 $0.95 Vil Number of common stock : Earning per share on commen- : S40144 cvijfviii) 192000 $0.90 ANS: part-2 _ Plan 1 $060Earnings per Share on plan 2 $0.50 ) Earnings perl share on common common stock stock Plan-2 $ 10 70000 214000 Workings; Plan-1 issue comment store, $5 $5 par par :$ 16,00 000 Number of common story :3 20000 issue preferred $1. Stow $10 pare: - Number of preferred stock : - prferned Stocka dividend rate (ligioos: - $13,30000 133000 20 %.

Income before bond in tenest and fall i $ 480000 i) Bond interest @ 107. : 6169000) (iii) Locome before ton ci-ic) : $320.000 (en Tan @ you : ($ 128000) (V) Incoone after tau :$ 192000 (vi) preferred dividend (13.30000 x lon) : (vi) Earnings for common Stock : $ 192000 (viii) Number of common stock : 320000 $ 480,000 ($ 80000) $400,000 ($160000) $240.000 6$ 133000) $ 1,07000 214000 TULK Earning 0.50 0.60 per share of common - Sfour (vi/yin)

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