Question
Quantitative Reasoning Problem 3 ACC 122 Assignment is to be completed as a Word Document, PDF, or on notebook paper and submitted through Moodle Compare
Quantitative Reasoning Problem 3
ACC 122
Assignment is to be completed as a Word Document, PDF, or on notebook paper and submitted through Moodle
Compare two alternatives for financing - Issuance of common stock vs. Issuance of bonds.
Northeast Airlines is considering two alternatives for the financing of the purchase of a fleet of airplanes. These two alternatives are:
- Issue 60000 shares of common stock at $45 per share. (Cash dividends have not been paid nor is the payment of any contemplated).
2. Issue 10%, 10-year bonds at face value for $2,700,000.
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 90000 shares of common stock outstanding prior to the new financing.
Instructions:
- How much capital is Northeast Airlines considering raising?
- Determine the effect on net income and earnings per share for both of these methods of financing.
- Which alternative would you recommend?
- Why?
Show calculations as well as explain in words your thinking behind your calculations and conclusions.
Quantitative Reasoning Problem 3
ACC 122
Assignment is to be completed as a Word Document, PDF, or on notebook paper and submitted through Moodle
Compare two alternatives for financing - Issuance of common stock vs. Issuance of bonds.
Northeast Airlines is considering two alternatives for the financing of the purchase of a fleet of airplanes. These two alternatives are:
- Issue 60000 shares of common stock at $45 per share. (Cash dividends have not been paid nor is the payment of any contemplated).
2. Issue 10%, 10-year bonds at face value for $2,700,000.
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 90000 shares of common stock outstanding prior to the new financing.
Instructions:
- How much capital is Northeast Airlines considering raising?
- Determine the effect on net income and earnings per share for both of these methods of financing.
- Which alternative would you recommend?
- Why?
Show calculations as well as explain in words your thinking behind your calculations and conclusions.
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Accounting For Managers Financial Accounting
Authors: Morusu Sivasankar
1st Edition
6200624909, 978-6200624901
