Exercise 10-15 Gilliland Airlines is considering two alternatives for the financ
ID: 2580002 • Letter: E
Question
Exercise 10-15 Gilliland Airlines is considering two alternatives for the financing of a purchase of a fleet of airplanes. These two alternatives are: 1 Issue 114,000 shares of common stock at $30 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2, Issue 796, 10-year bonds at face value for $3,420,000. It is estimated that the company will earn $845,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 35% and has 117,000 shares of common stock outstanding prior to the new financing Determine the effect on net income and earnings per share for these two methods of financing. (Round earnings per share to 2 decimal places, e.g. 2.25.) Plan One Issue Stock Plan Two Issue Bonds Net income Earnings per share sExplanation / Answer
Answer:-
Where:-
No. of shares in Plan one (Issue of shares) = Old shares+ New shares
= 117000+114000=231000
Effect on net income $ earnings per share Particluars Plan one Plan two Issue Stock Issue Bonds $ $ Net Income 845000 845000 Less:- Interest on bonds $3420000*7% 239400 Income before taxes 845000 605600 Income Taxes 35% 253500 211960 Income after taxes(A) 591500 393640 No of shares (B) 231000 117000 Earning per share C=A/B 2.56 3.36Related Questions
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