A Alternative financing plans Baker Co. is considering the following alternative financing plans:
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Plan 1
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Plan 2
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Issue 5% bonds (at face value)
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$3,000,000
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$1,500,000
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Issue preferred $4 stock, $25 par
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-
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2,500,000
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Issue common stock, $40 par
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3,000,000
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2,000,000
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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 $1,000,000.