Sunnyside's net income and earnings per share two years from now.
Begin by selecting the labels needed to analyze the effect of the alternatives on net income and to show earnings per share after the expansion.Next, enter the amounts to show the effect of the borrowingalternative, then enter the amounts to show the effect of the shares of stock alternative. (For amounts with a$0 balance, make sure to enter"0" in the appropriate column. Round the EPS calculation to two decimal places. Enter amounts in dollars instead ofmillions.)
Projected income before interest and income tax
Less:
Interest expense
Projected income before tax
Less:
Income tax expense
Earnings per share after expansion:
Alternative 1
Borrow $5.75 milllion
at 10%
Alternative 2
Issue 500,000 shares
of stock
Requirement 2. Complete the memo to Sunnyside
Sunnyside's management discussing the advantages and disadvantages of borrowing and of issuing common stock to raise the needed cash. Which method of raising funds would yourecommend?
To: Management of Sunnyside
Sunnyside Medical Goods
Subject: Advantages and disadvantages of borrowing versus issuing stock to raise cash for expansion
The advantages and disadvantages of borrowing to raise cash for expansion are asfollows: (If a box is not used in thetable, leave the boxempty; do not select alabel.)
Advantages
Disadvantages
The advantages and disadvantages of issuing stock to raise cash for expansion are asfollows: (If a box is not used in thetable, leave the boxempty; do not select alabel.)
Advantages
Disadvantages
The method of raising funds that I would recommend depends upon the goal of the company in relation to this plan.
every information is in the picture
o More Info The board of directors is considering obtaining the $5.75 million either by borrowing at 10% or by issuing an additional 500,000 shares of common stock. This year the company has eamed $2.5 million before interest and taxes and has 500,000 shares of $1-par common stock outstanding. The market price of the company's stock is $11.50 per share. Assume that income before interest and taxes is expected to grow by 30% each year for the next two years. The company's marginal income tax rate is 30%. Begin by selecting the labels needed to analyze the effect of the alternatives on net make sure to enter "0" in the appropriate column. Round the EPS calculation to two Alternative 1 Borrow $5.75 milllion at 10% Earnings per share after expansion: Income tax expense Interest expense Projected income before interest and income tax Projected income before tax Projected net incomeSunnyside Medical Goods is embarking on a massive expansion. Assume plans call for opening 20 new stores during the next two years. Each store is scheduled to be 30% larger than the company's existing locations, offering more items of inventory and with more elaborate displays. Management estimates that company operations will provide $1.0 million of the cash needed for expansion. Sunnyside Medical must raise the remaining $5.75 million from outsiders. (Click the icon to view information on raising the additional funds.) Read the requirements Requirement 1. Evaluate the effect the two financing alternatives will have on Sunnyside's net income and earnings per share two years from now. Begin by selecting the labels needed to analyze the effect of the alternatives on net income and to show earnings per share after the expansion. Next, enter the amounts to show the effect of the borrowing alternative, then enter the amounts to show the effect of the shares of stock alternative. (For amounts with a $0 balance, make sure to enter "0" in the appropriate column. Round the EPS calculation to two decimal places. Enter amounts in dollars instead of millions.) Alternative 1 Alternative 2 Borrow $5.75 milllion Issue 500,000 shares at 10% of stock Less: LessRequirement 2. Complete the memo to Sunnyside's management discussing the advantages and disadvantages of borrowing and of issuing common stock to raise the needed cash. Which method of raising funds would you recommend? To: Management of Sunnyside Medical Goods Subject: Advantages and disadvantages of borrowing versus issuing stock to raise cash for expansion The advantages and disadvantages of borrowing to raise cash for expansion are as follows: (If a box is not used in the table, leave the box empty; do not select a label.) Advantages Disadvantages The advantages and disadvantages of issuing stock to raise cash for expansion are as follows: (If a box is not used in the table, leave the box empty; do not select a label.) Advantages Disadvantages The method of raising funds that I would recommend depends upon the goal of the company in relation to this plan. If the company is looking to select an expansion plan that results in a higher earnings per share I would recommend to raise cash for expansion. If the company is looking for a "safe" means of raising cash I would recommend Choose from any list or enter any number in the input fields and then continue to the next question. borrowing issuing stockThe advantages and disadvantages of borrowing to raise cash for expansion are as follows: (If a box is no Advantages Disadvantages Dilution of the ownership interests of existing stockholders. Increases the financial risk of the company. It avoids the creation of a liability and its related payments. It does not change the present ownership of the business. for expansion are as follows: (If a box is Results in a higher earnings per share of common stock. Disadvantages Results in a lower earnings per share of common stock
