Two plans for financing a $20,000,000 expansion are under consideration. Under each of the following...
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Two plans for financing a $20,000,000 expansion are under consideration. 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 30%.
| Plan 1 | Plan 2 |
| 9% Bonds |
| 6% Preferred Stock, $100 par | $10,000,000 |
| Common Stock, $10 par | $20,000,000 | 10,000,000 | |
| Total | $20,000,000 | $20,000,000 |
It is estimated that income before interest and taxes will be $5,000,000. Instructions Determine for each plan, the expected net income and the earnings per share on common stock.
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