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Crane Company is considering these two alternatives for financing the purchase of a fleet of airplanes: 1. Issue 62,500 shares of common stock at $45 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) It is estimated that the company will earn $825,100 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 93,600 shares of common stock outstanding prior to the new financing. Determine the effect on net income and earnings per share for (a) issuing stock and (b) issuing bonds. Assume the new shares or new bonds will be outstanding for the entire year. (Round earnings per share to 2 decimal places, e.g. 2.66.) (a) Plan One Issue Stock (b) Plan Two Issue Bonds 2. Issue 10%, 10-year bonds at face value for $2,812,500. 1 >

Crane Company is considering these two alternatives for financing the purchase of a fleet of airplanes: 1. Issue 62,500 shares of common stock at $45 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) It is estimated that the company will earn $825,100 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 93,600 shares of common stock outstanding prior to the new financing. Determine the effect on net income and earnings per share for (a) issuing stock and (b) issuing bonds. Assume the new shares or new bonds will be outstanding for the entire year. (Round earnings per share to 2 decimal places, e.g. 2.66.) (a) Plan One Issue Stock (b) Plan Two Issue Bonds 2. Issue 10%, 10-year bonds at face value for $2,812,500. 1 >

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Crane Company is considering these two alternatives for financing the purchase of a fleet of airplanes: 1. Issue 62,500 shares of common stock at $45 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2. Issue 10%, 10-year bonds at face value for $2,812,500. It is estimated that the company will earn $825,100 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 93,600 shares of common stock outstanding prior to the new financing. Determine the effect on net income and earnings per share for (a) issuing stock and (b) issuing bonds. Assume the new shares or new bonds will be outstanding for the entire year. (Round earnings per share to 2 decimal places, e.g. 2.66.) (a) Plan One Issue Stock A 14 (b) Plan Two Issue Bonds A
Transcribed Image Text:Crane Company is considering these two alternatives for financing the purchase of a fleet of airplanes: 1. Issue 62,500 shares of common stock at $45 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2. Issue 10%, 10-year bonds at face value for $2,812,500. It is estimated that the company will earn $825,100 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 93,600 shares of common stock outstanding prior to the new financing. Determine the effect on net income and earnings per share for (a) issuing stock and (b) issuing bonds. Assume the new shares or new bonds will be outstanding for the entire year. (Round earnings per share to 2 decimal places, e.g. 2.66.) (a) Plan One Issue Stock A 14 (b) Plan Two Issue Bonds A
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