Mareska Inc. is considering two alternatives to finance its construction of a new $2 million plant. (a)
Question:
Mareska Inc. is considering two alternatives to finance its construction of a new $2 million plant.
(a) Issuance of 200,000 shares of common stock at the market price of $10 per share.
(b) Issuance of $2 million, 8% bonds at face value.
Complete the following table, and indicate which alternative ispreferable.
Common StockCommon stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Issue Stock Issue Bond $700,000 Income before interest and taxes Interest expense from bonds Income before income taxes Income tax expense (30%) Net income $700,000 2$ Outstanding shares Earnings per share 500,000
Step by Step Answer:
Issue Stock Issue Bond Income before interest and taxes Interest 2000000 X 8 Income before in...View the full answer
Accounting Principles
ISBN: 978-0470533475
9th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.
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