ING FOR MANAGERS (ACCT 604) Gradebook ORION Downloadable eTextbook n Assignment

Question

ING FOR MANAGERS (ACCT 604) Gradebook ORION Downloadable eTextbook n Assignment CALOULATOR Sheridan Company is considering these two alternatives for financing the purchase of a fleet of airplanes 1. Issue 59,500 shares of common stock at $41 per share. (Cash divildends have not been paid nor is the 2. Issue 15%, 10-year bonds at face value for $2,439,500. It is estimated that the company will earn sa 18,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 40% and has 99,000 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 entine year. (Round earnings per share to 2 decimal places, e.g. $2.66.) Plan One Issue Stock Plan Two 2439500 Income Income Before Taxes Net Income/(Loss) %202018

Explanation / Answer

Plan One Issue Stock

Plan Two Issue Bonds

Income Before Interest & Taxes

818000

818000

Interest (2439500 * 15%)

365925

Income Before Taxes

818000

452075

Income Tax Expense (40%)

327200

180830

Net Income/(Loss)

490800

271245

Outstanding Shares

158500

99000

Earning Per Share

3.10

2.74

Plan One Issue Stock

Plan Two Issue Bonds

Income Before Interest & Taxes

818000

818000

Interest (2439500 * 15%)

365925

Income Before Taxes

818000

452075

Income Tax Expense (40%)

327200

180830

Net Income/(Loss)

490800

271245

Outstanding Shares

158500

99000

Earning Per Share

3.10

2.74

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