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.

Understand the concept and importance of intellectual property (IP) in the modern business environment.

Understanding the basic concepts of company valuation and its relation to investment.

Identifying the qualifications of an accredited investor.

Comprehending the mechanics and implications of equity financing.

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Definitions:

Asset Turnover

A financial ratio that measures the efficiency of a company in using its assets to generate sales or revenue.

Net Sales

The net income generated from sales after deducting returns, allowances, and discounts.

Total Assets

The combined value of all owned resources and property by an entity that has economic value.

Salvage Value

An asset’s projected terminal value after the end of its usefulness.