151A Wilson Co. is considering the following alternative financingplans. Plan1 P
ID: 2444273 • Letter: 1
Question
151A
Wilson Co. is considering the following alternative financingplans.
Plan1 Plan 2
Issue 12% Bonds (at facevalue) $1,000,000 $500,000
Issue preferred $2 stock, $10 per share = 700,000
Issue common stock, $10par 1,000,000 800,000
Income tax is estimated at 40% of income. Determine theearnings per share of common stock, assuming income before bondinterest and income tax is $400,000.
Please put answer in chart. Thank you.
PLAN 1
PLAN 2
Earnings before bond interest & incometaxes
Bond interest
Balance
Income tax
Net income
Dividends of preferred stock
Earnings available for common stock
Number of common shares
Earnings per share on common stock
PLAN 1
PLAN 2
Earnings before bond interest & incometaxes
Bond interest
Balance
Income tax
Net income
Dividends of preferred stock
Earnings available for common stock
Number of common shares
Earnings per share on common stock
Explanation / Answer
Plan 1
Plan 2
Plan 1
Plan 2
Earnings before bondinterest & 400,000.00 400,000.00 Income Taxes Less: Bond Interest 120,000.00 60,000.00 Earnings after Interest ,before taxes 280,000.00 340,000.00 Less: Taxes 112,000.00 136,000.00 Earnings after Taxes 168,000.00 204,000.00 Dividends per preferredstock 140,000.00 Earnings available forcommon stock 168,000.00 64,000.00 Number of CommonShares 100,000.00 800,000.00 Earnings Per Share 1.68 0.08