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    Corporation Financing Plan

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    Three different plans for financing a $15,000,000 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 405 of income.

    Plan 1 Plan 2 Plan 3
    12% Bonds $6,250,000
    Preferred $4 stock, $50 par $7,500,000 5,000,000
    Common stock, $30 par $15,000,000 7,500,000 3,750,000
    Total $15,000,000 $15,000,000 $15,000,000

    Instructions
    1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $2,500,000.
    2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $1,500,000.
    3. What are the advantages and disadvantages of each plan.

    © BrainMass Inc. brainmass.com June 3, 2020, 5:04 pm ad1c9bdddf
    https://brainmass.com/business/accounting/corporation-financing-plan-12651

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