Rhett Co., which produces and sells biking equipment, is financed as follows: Income tax is estimated at 40% of income. What factors other than earnings per share should be considered in evaluating alternative financing plans?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Q6
Rhett Co., which produces and sells biking
equipment, is financed as follows: Income tax
is estimated at 40% of income. What factors
other than earnings per share should be
considered in evaluating alternative financing
plans?
a. Bonds represent a fixed annual interest
requirement, while dividends on stock do not.
b. Dividends reduce retained earnings.
c. Bond holders exercise control over board of
directors decisions.
d. Stock must be paid annual dividends.
e. Net income is reduced by dividend expense.
Transcribed Image Text:Rhett Co., which produces and sells biking equipment, is financed as follows: Income tax is estimated at 40% of income. What factors other than earnings per share should be considered in evaluating alternative financing plans? a. Bonds represent a fixed annual interest requirement, while dividends on stock do not. b. Dividends reduce retained earnings. c. Bond holders exercise control over board of directors decisions. d. Stock must be paid annual dividends. e. Net income is reduced by dividend expense.
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