EXERCISE 10-9 Plan One Plan Two Issue Stock Issue Bonds Income before interest and taxes $800,000 $800,000 Interest ($2,400,000 X 10%) 240,000 Income before taxes 800,000 580,000 Income tax expense (30%) 240,000 188,000 Net income mm $192,999 Outstanding shares _15_0_,m_Q M Earnings per share $1.13 Exercise 10-9 ~'Y'our answer is correct. Global Airlines is considering two alternatives for the nancing of a purchase of a eet of airplanes. These two alternatives are: 1. Issue 50,000 shares Of common stock at $40 per share. {Cash dividends have not been paid \"Or is the payment of any contemplated.) 2. Issue 10%r 10-year bonds at face value 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 shares of common stock outstanding prior to the new nancing. Determine the effect on net income and earnings per share for these two methods of nancing. {Round earnings per share to 2 decimal places, 9.9. $2.25.}