Ulmer Company Is Considering the Following Alternative Financing Plans Income Tax Is Estimated at 35% of Income

question 96

Essay

Ulmer Company is considering the following alternative financing plans:
$\begin{array}{|l|r|r|}\hline & \text { Plan 1 } & \text { Plan 2 } \\\hline \text { Issue } 8 \% \text { bonds at face value } & \$ 2,000,000 & \$ 1,000,000 \\\hline \text { Issue preferred stock, } \$ 15 \text { par } & - & 1,500,000 \\\hline \text { Issue common stock, } \$ 10 \text { par } & 2,000,000 & 1,500,000 \\\hline\end{array}$ Income tax is estimated at 35% of income.Dividends of $1 per share were declared and paid on the preferred stock.
Required: Determine the earnings per share of common stock,assuming income before bond interest and income tax is $600,000.

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Definitions:

Empirical

Based on observations or experience rather than theory or pure logic.

Rationally Constructed

Developed or created based on logical reasoning and thoughtful consideration.

Item Response Theory (IRT)

A theory and method used in education and psychology to model the relationship between individuals' skills or traits and their performance on test items.

Empirical Method

A scientific approach that relies on observation and experiment rather than theory or pure logic.