Jenson CoIs Considering the Following Alternative Plans for Financing the Company

question 137

Essay

Jenson Co.is considering the following alternative plans for financing the company:
$\begin{array}{lccc}& \text { Plan I } & \text { Plan II } \\\hline \text { Issue 10 \% bonds at face } & --& \$ 2,000,000 \\ \text { Issue \$ 10 par common stock } & \$3,000,000 & 1,000,000 \\\end{array}$ Income tax is estimated at 40% of income.
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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