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:

Slopes Downward

Describes a line or curve on a graph that decreases in value as it moves from left to right, often used in the context of supply and demand curves.

Concave

Describes a shape or curve that is curved inward, resembling the inner surface of a sphere or circle.

Indifference Curves

Graphical representations showing combinations of goods or services that give a consumer equal satisfaction and utility.

Demand Curve

A graph showing the relationship between the price of a good or service and the quantity of it that consumers are willing to purchase at different prices.