Oriole Airlines is considering two alternatives for the financing of a purchase of a fleet of airplanes. These two alternatives are: 1. Issue 81,300 shares of common stock at $30 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2. Issue 6%, 10-year bonds at face value for $2,439,000. It is estimated that the company will earn $757,500 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 106,500 shares of common stock outstanding prior to the new financing. Determine the effect on net income and earnings per share for these two methods of financing. (Round earnings per share to 2 decimal places, e.g. 2.25.) Plan One Issue Stock Plan Two Issue Bonds Net income $ $ Earnings per share $
Oriole Airlines is considering two alternatives for the financing of a purchase of a fleet of airplanes. These two alternatives are: 1. Issue 81,300 shares of common stock at $30 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2. Issue 6%, 10-year bonds at face value for $2,439,000. It is estimated that the company will earn $757,500 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 106,500 shares of common stock outstanding prior to the new financing. Determine the effect on net income and earnings per share for these two methods of financing. (Round earnings per share to 2 decimal places, e.g. 2.25.) Plan One Issue Stock Plan Two Issue Bonds Net income $ $ Earnings per share $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Oriole Airlines is considering two alternatives for the financing of a purchase of a fleet of airplanes. These two alternatives are:
| 1. | Issue 81,300 shares of common stock at $30 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) | |
| 2. | Issue 6%, 10-year bonds at face value for $2,439,000. |
It is estimated that the company will earn $757,500 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 106,500 shares of common stock outstanding prior to the new financing.
Determine the effect on net income and earnings per share for these two methods of financing. (Round earnings per share to 2 decimal places, e.g. 2.25.)
|
Plan One Issue Stock
|
Plan Two Issue Bonds
|
|||
| Net income |
$
|
$
|
||
| Earnings per share |
|
$
|
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