Alternative Financing Plans Frey Co. is considering the following alternative financing plans: Plan 1Plan 2 Issue 10% bonds (at face value)$1,440,000 $720,000 Issue preferred $1 stock, $10 par— 1,200,000 Issue common stock, $5 par1,440,000 960,000 Income tax is estimated at 40% of income. Determine the earnings per share on common stock, assuming that income before bond interest and income tax is $1,008,000. Enter answers in dollars and cents, rounding to two decimal places. Plan 1$ Earnings per share on common stock Plan 2$ Earnings per share on common stock

 1st Plan Earning per Share $  1.80

2nd Plan Earning per Share $ 2.30

The Second Plan provides better earnings per share.

Explanation:

1st Plan:

Income before Interest and taxes 1,008,000

Bonds Payable Interest:                   (144,000)  

Income before taxes                        864,000

Income tax expense                       (345,600)  

Net Income                                        518,400

Quantity of Common Stock:

$ 1,440,000 / $5 = 288,000

Earing per share:

518,400 / 288,000 = $1.80

2nd Plan:

Income before Interest and taxes 1,008,000

Bonds Payable Interest:                    (72,000)  

Income before taxes                        936,000

Income tax expense                       (374,400)  

Net Income                                        561,600

Preferred Shares Dividends            (120,000)

Available for common stock            441,600

Quantity of preferred Stock:

$1,200,000 / $10 =120,000 shares

Dividends on Preferred Shares:

120,000 x $1 = 120,000

Quantity of Common Stock:

$ 960,000 / $5 = 192,000

Earing per share:

441,600 / 192,000 = $2.30

if you use only 25 for your entertainment and only 200 for the groceries that you really need and take out the 50 per month for the computer then that should be enough