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PR 14-1A Effect of financing on earnings per share Three different plans for...

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Accounting

PR 14-1A Effect of financing on earnings per share
Three different plans for financing an $18,000,000 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:
Instructions
Determine the earnings per share of common stock for each plan, assuming that the
income before bond interest and income tax is $2,100,000.
Determine the earnings per share of common stock for each plan, assuming that the
income before bond interest and income tax is $1,050,000.
Discuss the advantages and disadvantages of each plan.
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