Cullumber Company is considering these two alternatives for financing the purchase of a fleet of airplanes 1 Issue 52,000 shares of common stock at $45 per share (Cash dividends have not been paid nor is the payment of any contemplated ) 2 Issue 11 , 15 year bonds at face value for $2,340,000 It is estimated that the company will earn $803,000 before interest and taxes as a result of this purchase The company has an estimated tax rate of 40 and has 91,500 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 or new bonds will be outstanding for the entire year Please answer with calculations if possible I'd like to understand Exercise 11 14 Cullumber Company is considering these two alternatives for financing the purchase of a fleet of airplanes 1 Issue 52,000 shares of common stock at $45 per share (Cash dividends have not been paid nor is the payment of any contemplated ) 2 Issue 11 , 15 year bonds at face value for $2,340,000 It is estimated that the company will earn $803,000 before interest and taxes as a result of this purchase The company has an estimated tax rate of 40 and has 91,500 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 or new bonds will be outstanding for the entire year (Round earnings per share to 2 decimal places, e g $2 66 ) Plan One Plan Two Issue Stock Issue Bonds

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 12, 2024

Cullumber Company is considering these two alternatives for financing the purchase of a fleet of airplanes. 1. Issue 52,000 shares of common stock at $45

Cullumber Company is considering these two alternatives for financing the purchase of a fleet of airplanes.

1.		Issue 52,000 shares of common stock at $45 per share. (Cash dividends have not been paid nor is the payment of any contemplated.)
2.		Issue 11%, 15-year bonds at face value for $2,340,000.

It is estimated that the company will earn $803,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 40% and has 91,500 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 or new bonds will be outstanding for the entire year.

Please answer with calculations if possible! I'd like to understand.

image text in transcribed

Exercise 11-14 Cullumber Company is considering these two alternatives for financing the purchase of a fleet of airplanes 1. Issue 52,000 shares of common stock at $45 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2. Issue 11%, 15-year bonds at face value for $2,340,000 It is estimated that the company will earn $803,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 40% and has 91,500 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 or new bonds will be outstanding for the entire year. (Round earnings per share to 2 decimal places, e.g. $2.66.) Plan One Plan Two Issue Stock Issue Bonds