Sorenson Co Income Tax Is Estimated at 40% of Income

Essay

Sorenson Co.,is considering the following alternative plans for financing the company:
$\begin{array}{lccc}& \text { Plan I } & \text { Plan II } \\\hline \text { Issue 10 \% bonds at face } & --& \$ 3,000,000 \\ \text { Issue \$ 10 par common stock } & \$4,000,000 & 1,000,000 \\\end{array}$

Income tax is estimated at 40% of income .
Determine the earnings per share of common stock under the two alternative financing plans,assuming income before bond interest and income tax is $1,000,000.