Turner Inc. is considering two alternatives to finance its construction of a new $4 million plant.

(a) Issuance of 500,000 shares of common stock at the market price of $10 per share.

(b) Issuance of $5 million, 6% bonds at par.

Instructions

Complete the following table. You MUST show your work to receive full credit.

Issue Stock Issue Bonds

Income before interest and taxes $10,000,000 $10,000,000

Interest expense from bonds

_________ _________

Income before income taxes $ $

Income tax expense (40%) _________ _________

Net income $________ $________

Outstanding shares _________ 2,000,000

Earnings per share _________ _________

Problem 4 (18 Points) Tumer Inc. is considering two alternatives to finance its construction of a new $4 million plan (a) Issuance of 500,000 shares of common stock at the market price of $10 per share. (b) Issuance of $5 million, 6% bonds at par. Instructions Complete the following table. You MUST show your work to receive full credit. Issue Stock Issue Bonds Income before Interest and taxes $10,000,000 $10,000,000 Interest expense from bonds Income before income taxes $ Income tax expense (40%) l. llll Net income Outstanding shares 2.000.000 Earnings per share