Global Car Rental is considering two alternatives for the financing of a purchase of a fleet of

Question:

Global Car Rental is considering two alternatives for the financing of a purchase of a fleet of cars. These two alternatives are:
1. Issue 60,000 ordinary shares at ¥40 per share. (Cash dividends have not been paid nor is the payment of any contemplated.)
2. Issue 7%, 10-year bonds at for ¥2,400,000.
It is estimated that the company will earn ¥800,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 90,000 ordinary shares outstanding prior to the new financing.
Instructions
Determine the effect on net income and earnings per share for these two methods of financing.
Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...