Continuing Case 13 s tock. Dividends are paid

| June 2, 2016

Question
Continuing Case
13
s
tock.
Dividends are paid on the
preferred stock
on June 30
and December 31 of each year. The stock would be issued
at par.
October 1
Issue 200,000 shares of common stock for $3 pe
r share.
December 1
Issue 100,000 shares of common stock for $3 per share.
No doubt this is an ambitious plan.
Although
there are a number of
questions about the assumptions in the plan, Conner and Martin would first like
to know the potential impact on e
arnings per share.
Instructions
Write a memo to Conner and Martin in which you explain basic and
diluted earnings per share.
Compute earnings per share given the new capital
structure following this financing plan. The forecasted net income for
2013
is
$
331,500
,
and the tax rate for CM
2
is 35%.
Note

The net income forecast
includes the interest expense on the bonds that are to be issued June

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