Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $30 million gaming center: a. Issue $34 million of 6% bonds at face amount. b. Issue 1 million shares of common stock for $34 per share. 1. Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answer in dollars, not millions. (i.e., $5.5 million should be entered as 5,500,000). Round your "Earnings per Share" to 2 decimal places. Round your "Earnings per Share" to 2 decimal places.) Issue Bonds Issue stock Operating income 10,900,000 10,900,000 Interest expense (bonds only) Income before tax Income tax expense (40%) Net Income Number of shares 3,900,000 4,900,000 Earnings per share
Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $30 million gaming center:
a. Issue $34 million of 6% bonds at face amount.
b. Issue 1 million shares of common stock for $34 per share.
1. Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answer in dollars, not millions. (i.e., $5.5 million should be entered as 5,500,000). Round your "Earnings per Share" to 2 decimal places. Round your "Earnings per Share" to 2 decimal places.)
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Issue Bonds |
Issue stock |
|
Operating income |
10,900,000 |
10,900,000 |
|
Interest expense (bonds only) |
|
|
|
Income before tax |
|
|
|
Income tax expense (40%) |
|
|
|
Net Income |
|
|
|
Number of shares |
3,900,000 |
4,900,000 |
|
Earnings per share |
|
|
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