None fine Airlines is considering two alternatives for the financing of a purchase of a fleet of airplanes. These two alternatives are: Issue 80,000 shares of common stock at $56 per share. (Cash dividends have not been paid nor is the payment of any contemplated). Issue 10%, 10-year bonds at face value for $2,700,000. It is estimated that the company will earn $950,000 before interest and taxes as a result of this Purchase. The company has an estimated tax rate of 30% and has 100,000 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. Which option is more suitable to finance the project?
None fine Airlines is considering two alternatives for the financing of a purchase of a fleet of airplanes. These two alternatives are: Issue 80,000 shares of common stock at $56 per share. (Cash dividends have not been paid nor is the payment of any contemplated). Issue 10%, 10-year bonds at face value for $2,700,000. It is estimated that the company will earn $950,000 before interest and taxes as a result of this Purchase. The company has an estimated tax rate of 30% and has 100,000 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. Which option is more suitable to finance the project?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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- None fine Airlines is considering two alternatives for the financing of a purchase of a fleet of airplanes. These two alternatives are:
- Issue 80,000 shares of common stock at $56 per share. (Cash dividends have not been paid nor is the payment of any contemplated).
- Issue 10%, 10-year bonds at face value for $2,700,000.
It is estimated that the company will earn $950,000 before interest and taxes as a result of this Purchase. The company has an estimated tax rate of 30% and has 100,000 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.
Which option is more suitable to finance the project?
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