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Determine for each plan the earnings per share

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Three different plans for financing a $15,000,000 corporationare under consideration by its organizers. Under each of thefollowing plans, the securities will be issued at their par or faceamount, and the income tax rate is estimated at 40% ofincome.                                    Plan1                 Plan2                     Plan3

12%bonds                                                                                       $6,250,000

Preferred $4 stock, $50par                                   $7,500,000                5,000,000

Common stock, $30par           $15,000,000            7,500,000                  3,750,000

TOTAL                                 $15,000,000         $15,000,000            $15,000,000

NSTRUCTIONS: 1. Determine for each plan the earnings per share ofcommon stock, assuming that the income before    bond interest and income tax is$2,500,000. 2. Determine for each plan the earnings per share ofcommon stock, assuming that the income before    bond interest and income tax is$1,500,000. 3. Discuss the advantages and disadvantages of each plan.

Reference no: EM13258851

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