Exercise 8-21

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

1.		Issue 62,500 shares of common stock at $45 per share. (Cash dividends have not been paid nor is the payment of any contemplated.)
2.		Issue 13%, 15-year bonds at face value for $2,812,500.

It is estimated that the company will earn $824,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 40% and has 93,600 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 Issue Stock		Plan Two Issue Bonds
Total ExpensesIncome Tax ExpenseTotal RevenuesDividendsRevenuesInterestIncome Before TaxesNet Income / (Loss)Outstanding SharesRetained Earnings, January 1Income Before Interest and TaxesRetained Earnings, December 31Earnings Per ShareExpenses		$		$
Retained Earnings, December 31Total RevenuesEarnings Per ShareDividendsNet Income / (Loss)RevenuesExpensesInterestIncome Before Interest and TaxesOutstanding SharesIncome Tax ExpenseTotal ExpensesIncome Before TaxesRetained Earnings, January 1
Earnings Per ShareDividendsTotal RevenuesOutstanding SharesIncome Before TaxesIncome Before Interest and TaxesRetained Earnings, January 1Income Tax ExpenseRetained Earnings, December 31RevenuesExpensesInterestNet Income / (Loss)Total Expenses
ExpensesIncome Before Interest and TaxesTotal ExpensesRevenuesTotal RevenuesIncome Before TaxesIncome Tax ExpenseInterestEarnings Per ShareNet Income / (Loss)Outstanding SharesRetained Earnings, December 31Retained Earnings, January 1Dividends
Total RevenuesRetained Earnings, January 1Outstanding SharesRetained Earnings, December 31Total ExpensesInterestDividendsEarnings Per ShareRevenuesIncome Tax ExpenseIncome Before Interest and TaxesExpensesIncome Before TaxesNet Income / (Loss)		$		$
Outstanding SharesExpensesRetained Earnings, January 1Retained Earnings, December 31RevenuesEarnings Per ShareIncome Before TaxesInterestTotal ExpensesTotal RevenuesDividendsIncome Before Interest and TaxesIncome Tax ExpenseNet Income / (Loss)
Retained Earnings, December 31ExpensesOutstanding SharesRetained Earnings, January 1Total RevenuesNet Income / (Loss)Earnings Per ShareRevenuesIncome Before TaxesIncome Tax ExpenseInterestTotal ExpensesDividendsIncome Before Interest and Taxes		$		$