Your answer is partially correct. Try again Sandhill Co. is considering these tw

Question

Your answer is partially correct. Try again Sandhill Co. is considering these two alternativesfor financing the purchase of a fleet of airplanes. 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 Income Before Interest and Taxes 810000 810000 Interest 331890 Income Before Interest and Taxes 810000 478110 Income Tax Expense 243000 143433 567000 334677 Net Income/ (Loss) Outstanding Shares 150500 95000 3.77 3.52 Earnings Per Share

Explanation / Answer

Calculate earning per share :

Plan one issue stock Plan two issue bonds Income before interest and taxes 810000 810000 Interest 0 331890 Income before tax 810000 478110 Income tax 324000 191244 Net income 486000 286866 Outstanding shares 150500 95000 Earning per share 3.23 3.02

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