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Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac
Edition 26ISBN: 978-1337498159Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac
Edition 26ISBN: 978-1337498159 Exercise 28
Effect of financing on earnings per share
Three different plans for financing an $18,000,000 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:
Instructions
1. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $2,100,000.
2. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $1,050,000.
3. Discuss the advantages and disadvantages of each plan.
Three different plans for financing an $18,000,000 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:
Instructions
1. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $2,100,000.
2. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $1,050,000.
3. Discuss the advantages and disadvantages of each plan.
Explanation
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1. Effect of financing on EPS: (Amount i...
Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac
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