Wilcox Co. is considering the following alternative financing plans
Plan 1 Plan 2
issue 12% bonds (at face value) $1,000,000 $500,000
issue preferred $2 stock,$10 per share -------- $700,000
issue common stock, $10 par $1,000,000 $800,000
income tax is estimated at 40% of income.
Determine the earnings per share of common stock, assuming income before bond interest and income tax is $400,000
What is the earnings per share on common stock for plan 1 and plan 2
I don't know how to do it. My book is not showing any "steps", please show me the steps.
Earnings per share = (Net income - preferred dividends)/number of common shares outstanding.
Income before interest and tax = 400,000
interest (1,000,000X12%) = ...
The solution explains how to calculate the earnings per share under different financing plans