Answer and Explanation:
Particulars Plan 1 Plan 2
Income before interest and tax $756,000 $756,000
Less: Interest expenses -108,000 -54,000
($1,080,000 ×10%) ($540,000 × 10%)
Income before tax $648,000 $702,000
Less: Income tax expense -$259,200 -$280,800
($648,000 × 40%) ($702,000 × 40%)
Net income $388,800 $421,200
Less: Preferred dividend $0 -$90,000
Profit available for common stockholder's (A) $388,800 $331,200
Divided by Number of common shares (B) 216,000 $144,000
($1,080,000 ÷ $5) ($720,000 ÷ $5)
Earning per share (A) ÷ (B) $1.8 $2.3
By dividing the profit by the number of shares we can get the earning per share and the same is shown above
