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.

Question

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.

Quizplus · Accepted Answer

The Answer of 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.

Sorenson Co Income Tax Is Estimated at 40% of Income