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Banks Company is considering two alternatives to finance its purchase of a new $3,000,000 office building. (a) Issue 300,000 shares of common stock at $10
Banks Company is considering two alternatives to finance its purchase of a new $3,000,000 office building. (a) Issue 300,000 shares of common stock at $10 per share. (b) Issue 8%, 10- year bonds at par ($3,000,000). Income before interest and taxes is expected to be $1,500,000. The company has a 30 % tax rate and has 600,000 shares of common stock outstanding prior to the new financing. Instructions: Calculate each of the following for each alternative: (1) Net income. (2) Earnings per share. Solution
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