Larkspur, Inc.currently has 720,000 shares of common stock outstanding. Larkspur, Inc. is considering these two alternatives to finance its construction of a new $1.70 million plant:1. Issuance of 170,000 shares of common stock at the market price of $10 per share.2. Issuance of $1.70 million, 6% bonds at face value. Complete the table. (Round earnings per share to 2 decimal places, e.g. $2.66.) Issue Stock Issue BondsIncome before interest and taxes $1,620,000 $1,620,000Interest expense from bonds Income before income taxes Income tax expense (40%) Net income $ $ Outstanding shares 720,000Earnings per share $ $

By issuing stock, the company will have no interest expenses from bond. The number of outstanding…

Answered: Larkspur, Inc.currently has 720,000…

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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Larkspur, Inc.currently has 720,000 shares of common stock outstanding. Larkspur, Inc. is considering these two alternatives to finance its construction of a new $1.70 million plant:

1.		Issuance of 170,000 shares of common stock at the market price of $10 per share.
2.		Issuance of $1.70 million, 6% bonds at face value.

Complete the table. (Round earnings per share to 2 decimal places, e.g. $2.66.)

	Issue Stock	Issue Bonds
Income before interest and taxes	$1,620,000	$1,620,000
Interest expense from bonds
Income before income taxes
Income tax expense (40%)
Net income	$	$

Outstanding shares		720,000
Earnings per share	$	$

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