eTextbook ment HSSAGE NY Exercise 11-14 Blossom Company is considering these two

Question

eTextbook ment HSSAGE NY Exercise 11-14 Blossom Company is considering these two aternatives for finanong the purchase of neet of airplanes. 1 Issue 62,000 shares of common stock at $43 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2. Issue 1 1%, 15-year bonds at face value for $2.666,000. it is estimated that the company will earn $823,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 40% and has 93,100 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 er new bonds will be outstánding for the entire year. (Round earnings per share to 2 decímal places, e.g. $2.66.) Plan One Issue Stock Plan TwO Issue Bonds Osen Show wark Click if vou would like to Show Work for this questions 0

Explanation / Answer

Following are the items company recording withholding payable to government:

Issue stock Workings Issue bonds Workings EBIT        8,23,000        8,23,000 Less: Interest                     -          2,93,260 EBT        8,23,000        5,29,740 Less: Tax        3,29,200        2,11,896 PAT        4,93,800        3,17,844 Shares outstanding        1,55,100 93100+62000            93,100 EPS                 3.18 493800/155100                 3.41 317844/93100

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