Question

Jenson Co. is considering the following alternative plans for financing the company:

Plan 1Plan 2
Issue 10% bonds (at face)$2,000,000
Issue $10 common stock$3,000,000 1,000,000

​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.

Answer

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