June CoIs Considering the Following Alternative Plans for Financing the Company

question 132

Essay

June Co.is considering the following alternative plans for financing the company: $$\begin{array}{l}& \text { Plan I } & \text { Plan II } \\\text { Issue } 10 \% \text { Bonds (at face) } & - & \$ 3,000,000 \\\text { Issue } \$ 10 \text { Common Stock } & \$ 4,000,000 & \$ 1,000,000\\\text { Income tax is estimated at } 40 \% \text { of income. }\end{array}$$ 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.

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Definitions:

Purchases Returns

Transactions where a buyer returns goods previously purchased to the seller, often due to defects or other issues, resulting in a credit to the buyer's account.

Sales Returns

Goods returned by the customer to the seller for a refund or credit, typically due to defects or other dissatisfaction.

Depreciation Expense-Equipment

The allocation of the cost of equipment over its useful life, reflecting wear and tear and loss of value over time.

Equipment

Tangible property used in the operation of a business that is not intended for sale in the usual course of business.