Three different plans for financing a $10,000,000 corporation are under consideration
Question # 00025306
Posted By:
Updated on: 09/06/2014 03:33 PM Due on: 09/30/2014
| Question: | |||
| Three different plans for financing a $10,000,000 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. | |||
| Plan 1 Plan 2 Plan 3 | |||
| 10% bonds — — $ 5,000,000 | |||
| Preferred 10% stock, $40 par — $ 5,000,000 2,500,000 | |||
| Common stock, $10 par $10,000,000 5,000,000 2,500,000 | |||
| Total $10,000,000 $10,000,000 $10,000,000 | |||
| Instructions | |||
| 1. Determine for each plan the earnings per share of common stock, assuming | |||
| that the income before bond interest and income tax is $2,000,000. | |||
| 2. Determine for each plan the earnings per share of common stock, assuming | |||
| that the income before bond interest and income tax is $950,000. | |||
| 3. Discuss the advantages and disadvantages of each plan. |
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Rating:
/5
Solution: Three different plans for financing