EuropCar Rental is considering two alternatives for the financing of a purchase of a fleet of cars. These two alternatives are: Issue 60,000 shares of common stock at $45 per share. Issue 12%, 10-year bonds at face value for $2,500,000. It is estimated that the company will earn $750,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 90,000 shares of common stock outstanding prior to the new financing. Instructions Determine the effect on net income and earnings per share for these two methods of financing
EuropCar Rental is considering two alternatives for the financing of a purchase of a fleet of cars. These two alternatives are: Issue 60,000 shares of common stock at $45 per share. Issue 12%, 10-year bonds at face value for $2,500,000. It is estimated that the company will earn $750,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 90,000 shares of common stock outstanding prior to the new financing. Instructions Determine the effect on net income and earnings per share for these two methods of financing
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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- EuropCar Rental is considering two alternatives for the financing of a purchase of a fleet of cars. These two alternatives are:
- Issue 60,000 shares of common stock at $45 per share.
- Issue 12%, 10-year bonds at face value for $2,500,000.
It is estimated that the company will earn $750,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 90,000 shares of common stock outstanding prior to the new financing.
Instructions
Determine the effect on net income and earnings per share for these two methods of financing.
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