Zubair Al Wahaibi (LLC), is considering two plans for financing the construction of new plant costing OMR 600,000. Plan A Plan A involves issuance of 150,000 shares of common stock as at a market price OMR 4 per share. Plan B Plan B involves the issuance of a bond at OMR 600,000, at a rate of 5% on face value. The Profit before interest and tax for the new plant is OMR 100,000. The organizations tax rate is expected to be 25%. The organization currently common stock outstanding consists of 50,000 shares. Based on the above information, you are required to calculate the following. A). The Earnings per share for both Plan A and Plan B? B). Explain why the Earnings per share differ from Plan A to Plan B
Question 2
Zubair Al Wahaibi (LLC), is considering two plans for financing the construction of new plant costing OMR 600,000.
Plan A
Plan A involves issuance of 150,000 shares of common stock as at a market price OMR 4 per share.
Plan B
Plan B involves the issuance of a bond at OMR 600,000, at a rate of 5% on face value.
The Profit before interest and tax for the new plant is OMR 100,000. The organizations tax rate is expected to be 25%. The organization currently common stock outstanding consists of 50,000 shares.
Based on the above information, you are required to calculate the following.
A). The Earnings per share for both Plan A and Plan B?
B). Explain why the Earnings per share differ from Plan A to Plan B
Step by step
Solved in 3 steps with 2 images
