Business is going well for Parli'N Fly, the company that operates remote parking lots near major airports. T'he board of directors of this family-owned company believes that Park'N Fly could earn an additional $1.5 million income before interest and taxes by expanding into new markets. However, the $5 million that the business needs for growth cannot be raised within the family. The directors, who strongly wish to retain family control of the company, must consider issuing securities to outsiders. The directors are considering three financing plans. Plan A is to borrow at 6%. Plan B is to issue 100,000 shares of common stock. Plan C is to issue 100,000 shares of nonvoting, $3.75 preferred stock ($3.75 is the annual dividend paid on each share of preferred stock). Park'N Fly presently has net income of $3.5 million and 1 million shares of common stock Outstanding. The company's income tax rate is 35%. Requirements: 1) - Prepare an analysis to determine which plan will result in the highest earnings per share of common stock. 2) - Recommend a plan to the board of directors, Give your reasons.
Business is going well for Parli'N Fly, the company that operates remote parking lots near major airports. T'he board of directors of this family-owned company believes that Park'N Fly could earn an additional $1.5 million income before interest and taxes by expanding into new markets. However, the $5 million that the business needs for growth cannot be raised within the family. The directors, who strongly wish to retain family control of the company, must consider issuing securities to outsiders. The directors are considering three financing plans. Plan A is to borrow at 6%. Plan B is to issue 100,000 shares of common stock. Plan C is to issue 100,000 shares of nonvoting, $3.75 preferred stock ($3.75 is the annual dividend paid on each share of preferred stock). Park'N Fly presently has net income of $3.5 million and 1 million shares of common stock Outstanding. The company's income tax rate is 35%. Requirements: 1) - Prepare an analysis to determine which plan will result in the highest earnings per share of common stock. 2) - Recommend a plan to the board of directors, Give your reasons.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Business is going well for Parli'N Fly, the company that operates remote parking lots near
major airports. T'he board of directors of this family-owned company believes that Park'N Fly
could earn an additional $1.5 million income before interest and taxes by expanding into
new markets. However, the $5 million that the business needs for growth cannot be raised within
the family. The directors, who strongly wish to retain family control of the company, must
consider issuing securities to outsiders. The directors are considering three financing plans.
Plan A is to borrow at 6%.
Plan B is to issue 100,000 shares of common stock.
Plan C is to issue 100,000 shares of nonvoting, $3.75 preferred stock ($3.75 is the annual
dividend paid on each share of preferred stock).
Park'N Fly presently has net income of $3.5 million and 1 million shares of common stock
Outstanding. The company's income tax rate is 35%.
Requirements:
1) - Prepare an analysis to determine which plan will result in the highest earnings per share of
common stock.
2) - Recommend a plan to the board of directors. Give your reasons.
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