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Question
Ulmer Company is considering the following alternative financing plans:
| Plan 1 | Plan 2 | |
| Issue 8% bonds at face value | $2,000,000 | $1,000,000 |
| Issue preferred stock, $15 par | — | 1,500,000 |
| Issue common stock, $10 par | 2,000,000 | 1,500,000 |
Income tax is estimated at 35% of income. Dividends of $1 per share were declared and paid on the preferred stock.
Determine the earnings per share of common stock, assuming income before bond interest and income tax is $600,000.
Answer
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