13-1A_9e - $0 $800,000 $400,000 Available for dividends on...

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Problem 13-1A Name: Section: Enter the appropriate amounts in the shaded cells below. A red asterisk (*) will appear to the right of an incorrect amount in the outlined cells. 1. Plan 1 Plan 2 Plan 3 Earnings before interest and income tax $20,000,000 $20,000,000 $20,000,000 Deduct interest on bonds 0 $0 $1,600,000 Income before income tax $20,000,000 $20,000,000 $18,400,000 Deduct income tax 8,000,000 $8,000,000 $7,360,000 Net income 12,000,000 $12,000,000 $11,040,000 Dividends on preferred stock 0 $800,000 $400,000 Available for dividends on common stock 12,000,000 $11,200,000 $10,640,000 Divide by shares of common stock outstanding 4,000,000 $2,000,000 $1,000,000 Earnings per share on common stock 3 2. Plan 1 Plan 2 Plan 3 Earnings before interest and income tax $2,600,000 $2,600,000 $2,600,000 Deduct interest on bonds $0 $0 $1,600,000 Income before income tax $2,600,000 $2,600,000 $1,000,000 Deduct income tax $1,040,000 $1,040,000 $400,000 Net income $1,560,000 $1,560,000 $600,000 Dividends on preferred stock
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Unformatted text preview: $0 $800,000 $400,000 Available for dividends on common stock $1,560,000 $760,000 $200,000 Divide by shares of common stock outstanding $4,000,000 $2,000,000 $1,000,000 Earnings per share on common stock $0 * $0 * $0 3. Plan 1: Plan 2: Plan 3: The main advantage of this Plan is that it only involves the issuance of common stock. So technically, you don't need to pay a periodic return of investment. However, this Plan would call for shareholders to front mor money to maintain the interest in the company. Unlike Plan1, Plan 2 calls to pay dividends to preferred shareholders. This Plan has a little bit of both of the advantanges and disadvantages from both plans but not as extreme. I'd say this is the most conveservative all three plans. This plan calls on periodic payments to made due to bonds and preferred stock. This is a drawback to common shareholders because there' s less money to go around after all is said and done. * re of...
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This note was uploaded on 04/22/2009 for the course BUS 181 taught by Professor Ms. smith during the Spring '09 term at Harold Washington College - CCC.

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13-1A_9e - $0 $800,000 $400,000 Available for dividends on...

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