VL Electronics is considering two plans for raising $1,000,000 to expand operations. Plan A is to issue 6% bonds payable, and plan B Before any new financing, VL Electronics has net income of $450,000 and 100,000 shares of common stock outstanding Management believes the company can use the new funds to earn additional income of $900,000 before interest and taxes. The income tax rate is 21% Analyze the VL. Electronics situation to determine which plan will result in higher eamings per share (Complete all answer boxes Entor "0" for any zero balances. Round earnings per share amounts to the nearest cent)
VL Electronics is considering two plans for raising $1,000,000 to expand operations. Plan A is to issue 6% bonds payable, and plan B Before any new financing, VL Electronics has net income of $450,000 and 100,000 shares of common stock outstanding Management believes the company can use the new funds to earn additional income of $900,000 before interest and taxes. The income tax rate is 21% Analyze the VL. Electronics situation to determine which plan will result in higher eamings per share (Complete all answer boxes Entor "0" for any zero balances. Round earnings per share amounts to the nearest cent)
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
Section: Chapter Questions
Problem 1PS
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Question
am. 281.
Transcribed Image Text:VL Electronics is considering two plans for raising $1,000,000 to expand operations. Plan A is to issue 6% bonds payable, and plan B is to issue 600,000 shares of common slock
Before any new financing, VL. Electronics has net income of $450,000 and 100,000 shares of common stock outstanding Management believes the company can use the new funds
to earn additional income of $900,000 before interest and taxes. The income tax rate is 21%. Analyze the VL. Electronics situation to determine which plan will result in higher earnings
per share (Complete all answer boxes Enter "0" for any zero balances. Round earnings per share amounts to the nearest cent)
Net income before new project
Expected income on the new project before
interest and income tax expenses
Less Interest expense
Project income before income tax
Less Income tax expense
Project net income
Net income with new project
Earnings per share with new project:
Plan A
Plan B
Plan A: Issue $1,000,000
of 6% Bonds Payable
4
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