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Earnings per share

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.

Solution Preview

Earnings per share = (Net income - preferred dividends)/number of common shares outstanding.

Plan 1-
Income before interest and tax = 400,000
interest (1,000,000X12%) = ...

Solution Summary

The solution explains how to calculate the earnings per share under different financing plans

$2.19