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Question
Sorenson Co. is considering the following alternative plans for financing the company:
| Plan 1 | Plan 2 | |
| Issue 10% bonds (at face) | — | $3,000,000 |
| Issue $10 par common stock | $4,000,000 | 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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