JM Electronics is considering two plans for raising $2,000,000 to expand operations. Plan A is to issue 9% bonds payable, and plan B is to issue 500,000 shares of common stock. Before any new financing, JM Electronics has net income of $250,000 and 300,000 shares of common stock outstanding. Management believes the company can use the new funds to earn additional income of $500,000 before interest and taxes. The income tax rate is 30%. Analyze the JM Electronics situation to determine which plan will result in higher earnings per share. (Complete all answer boxes. Enter "0" for any zero balances. Round earnings per share amounts to the nearest cent.) Begin by completing the analysis below for plan A, then plan B. Plan A: Issue $2,000,000 of 9% Bonds Payable Net income before new project Expected income on the new project before interest and income tax expenses Less: Interest expense Project income before income tax Less: Income tax expense Project net income Net income with new project Earnings per share with new project: Plan A Dlan D II
JM Electronics is considering two plans for raising $2,000,000 to expand operations. Plan A is to issue 9% bonds payable, and plan B is to issue 500,000 shares of common stock. Before any new financing, JM Electronics has net income of $250,000 and 300,000 shares of common stock outstanding. Management believes the company can use the new funds to earn additional income of $500,000 before interest and taxes. The income tax rate is 30%. Analyze the JM Electronics situation to determine which plan will result in higher earnings per share. (Complete all answer boxes. Enter "0" for any zero balances. Round earnings per share amounts to the nearest cent.) Begin by completing the analysis below for plan A, then plan B. Plan A: Issue $2,000,000 of 9% Bonds Payable Net income before new project Expected income on the new project before interest and income tax expenses Less: Interest expense Project income before income tax Less: Income tax expense Project net income Net income with new project Earnings per share with new project: Plan A Dlan D II
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:JM Electronics is considering two plans for raising $2,000,000 to expand operations. Plan A is to issue 9% bonds payable, and plan B is to issue 500,000 shares of common stock. Before any new
financing, JM Electronics has net income of $250,000 and 300,000 shares of common stock outstanding. Management believes the company can use the new funds to earn additional income of
$500,000 before interest and taxes. The income tax rate is 30%. Analyze the JM Electronics situation to determine which plan will result in higher earnings per share. (Complete all answer boxes.
Enter "0" for any zero balances. Round earnings per share amounts to the nearest cent.)
Begin by completing the analysis below for plan A, then plan B.
Plan A: Issue $2,000,000
of 9% Bonds Payable
Net income before new project
Expected income on the new project before
interest and income tax expenses
Less: Interest expense
Project income before income tax
Less: Income tax expense
Project net income
Net income with new project
Earnings per share with new project:
Plan A
Dlan D
II
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