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:

Industry Code

A system of classification for businesses and organizations that categorizes them based on their primary activity.

Federal Agency

A governmental body of the United States established by Congress to perform specific functions or objectives.

National Labor Relations Act

is a crucial piece of American legislation that safeguards the rights of workers to unionize and engage in collective bargaining, serving as the foundation for labor law in the United States.

Bargaining Power

The extent of influence or leverage one party holds over another in negotiations, affecting the ability to secure favorable terms.