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Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $19 million gaming center: a. Issue $19 million of
Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $19 million gaming center:
a. Issue $19 million of 7% bonds at face amount.
b. Issue 1 million shares of common stock for $19 per share.
Required: 1. Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answer in dollars, not millions. (i.e., $5.5 million should be entered as 5,500,000). Round your "Earnings per Share" to Issue Bonds $ 9,400,000 Issue Stock $ 9,400,000 Operating income Interest expense (bonds only) Income before tax Income tax expense (35%) Net income Number of shares Earnings per share $ $ 0 2,400,000 3,400,000 2. Which alternative results in the highest earnings per share? Multiple Choice Issue bonds Issue stockStep by Step Solution
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