Question

Alternative Financing Plans

Frey Co. is considering the following alternative financing plans:

	Plan 1		Plan 2
Issue 10% bonds (at face value)	$1,200,000		$600,000
Issue preferred $1 stock, $10 par	—		1,000,000
Issue common stock, $5 par	1,200,000		800,000

Income tax is estimated at 40% of income.

Determine the earnings per share on common stock, assuming that income before bond interest and income tax is $600,000.

Enter answers in dollars and cents, rounding to two decimal places.

Plan 1	$ Earnings per share on common stock
Plan 2	$ Earnings per share on common stock

Answer 1

The answer has been presenetd in the supporting sheet. For detailed answer refer to the supporting sheet.