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Three different plans for financing a $10,000,000 corporation are under consideration

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Question;Question;Three;different plans for financing a $10,000,000 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.;Plan 1 Plan 2 Plan 3;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;Instructions;1.;Determine for each plan the earnings per share of common stock, assuming;that;the income before bond interest and income tax is $2,000,000.;2.;Determine for each plan the earnings per share of common stock, assuming;that;the income before bond interest and income tax is $950,000.;3.;Discuss the advantages and disadvantages of each plan.

 

Paper#40166 | Written in 18-Jul-2015

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