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Determine the effect on profit and return on ordinary shareholders' equity for: (a)issuing shares(b)issuing debentures. End of Chapter Exercise 10.11 Spring Time Ltd is considering

Determine the effect on profit and return on ordinary shareholders' equity for:

(a)issuing shares(b)issuing debentures.

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End of Chapter Exercise 10.11 Spring Time Ltd is considering the following two alternatives for financing extensions. 1 . Issue 67,000 shares at $20 per share. (Cash dividends have not been paid; nor is the payment of any cash dividend contemplated.) 2 . Issue 10%, 10-year debentures at face value for $1,340,000. (Assume that 10% is also the market rate for similar securities.) It is estimated that the company will earn $520,000 before interest and taxes as a result of the extension. The company has an estimated tax rate of 30% and has equity of $1,957,000 prior to the new financing. Required Determine the effect on profit and return on ordinary shareholders' equity for: (a) issuing shares (b) issuing debentures. (Round return on equity to 2 decimal places, e.g. 15.27%.) Spring Time Ltd (a) Issue shares (b) Issue debentures Profit 364000 270200 Return on equity 13.86 % 13.81 % Click if you would like to Show Work for this question: Open Show Work

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