Problem: 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