Rustic Campsites, Incorporated, is trying to decide between the following two alternatives to finance its new $34 million gaming center a. Issue $34 million, 6% note. b. Issue 1 million shares of common stock for $34 per share with expected annual dividends of $2.04 per share Required: 1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative 2. Answer the following questions for the current year: (a) By how much are interest payments higher if issuing the note? (b) By how much are dividend payments higher by Issuing stock? (c) Which alternative results in higher earnings per share? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answers in dollars, not millions (ie, $5.5 million should be entered as 5,500,000), Round your "Earnings per Share" to 2 decimal places.) Operating income Interest expense (on note only) Income before tax Income tax expense (30%)) Issue Note Issue Stock $ 10,900,000 $ 10,000,000 Not income Number of shares 3.900.000 4,500,000 Earrings per shars (Net income/Number of shares) Required 2 >
Rustic Campsites, Incorporated, is trying to decide between the following two alternatives to finance its new $34 million gaming center a. Issue $34 million, 6% note. b. Issue 1 million shares of common stock for $34 per share with expected annual dividends of $2.04 per share Required: 1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative 2. Answer the following questions for the current year: (a) By how much are interest payments higher if issuing the note? (b) By how much are dividend payments higher by Issuing stock? (c) Which alternative results in higher earnings per share? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answers in dollars, not millions (ie, $5.5 million should be entered as 5,500,000), Round your "Earnings per Share" to 2 decimal places.) Operating income Interest expense (on note only) Income before tax Income tax expense (30%)) Issue Note Issue Stock $ 10,900,000 $ 10,000,000 Not income Number of shares 3.900.000 4,500,000 Earrings per shars (Net income/Number of shares) Required 2 >
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Rustic Campsites, Incorporated, is trying to decide between the following two alternatives to finance its new $34 million gaming
center
a. Issue $34 million, 6% note.
b. Issue 1 million shares of common stock for $34 per share with expected annual dividends of $2.04 per share
Required:
1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative
2. Answer the following questions for the current year:
(a) By how much are interest payments higher if issuing the note?
(b) By how much are dividend payments higher by Issuing stock?
(c) Which alternative results in higher earnings per share?
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each
alternative. (Enter your answers in dollars, not millions (ie, $5.5 million should be entered as 5,500,000), Round your
"Earnings per Share" to 2 decimal places.)
Operating income
Interest expense (on note only)
Income before tax
Income tax expense (30%))
Issue Note
Issue Stock
$ 10,900,000 $ 10,000,000
Not income
Number of shares
3.900.000
4,500,000
Earrings per shars (Net income/Number of shares)
Required 2 >
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