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Q1) Three different plans for financing a $10,000,000 corporation are under consideration by its organizers. Under each of the given plans, securities will be issued at their par or face amount, and income tax rate is evaluated at 40% of income.

 
Plan 1
Plan2
Plan3
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

problems:

1. Find out for each plan the earnings per share of common stock, suppose that income before bond interest and income tax is $2,000,000.

2. Find out for each plan the earnings per share of common stock, suppose that income before bond interest and income tax is $950,000.

3. describe the advantages and disadvantages of each plan.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M919605

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