twr Q Orion Chapter 1 Q Orion Ch 11 Fla 2 https Assignment C

twr Q Orion Chapter 1 Q Orion Ch 11 Fla 2 https/ Assignment CALCULATOR MESSAGE MY INSTRUCIOR \'ULL SCREEN PRINTER VERSION BACK Exercise 11-14 Sandhill Co. is considering these two alternatives for financing the purchase of a fleet of airplanes. ded 1. Issue 55,500 shares of common stock at $46 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2. Issue 1396, 15-year bonds at face value for $2,553,000. It is estimated that the company will earn $810,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 40% and has 95,000 shares of common stock outstanding prior to the new financing Determine the effect on net income and earnings per share for issuing stock and issuing bonds. Assume the new shares or new bonds will be outstanding for the entire year. (Round earnings per share to 2 decimal places, e.g. $2.66.) Plan One Issue Stock Plan Two Issue Bonds 11 27 PM 6/27/2018 23 o search

Solution

Plan I Plan II Earning before Interest and tax 810000 810000 less:Interest 0 (331890)      [2553000*.13] Earning before tax 810000 478110 less:Tax 324000     [810000*.40] (191244)      [478110*.40] Net Income 486000 286866 Number of shares outstanding 95000+55500=150500 95000 Earning per share 486000/150500=$ 3.23 286866/95000=$3.02