Shaffer Inc

Shaffer Inc. is considering two alternatives to finance its construction of a new $5 million plant.

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

(b)   Issuance of $5 million, 8% bonds at par.

Instructions

Complete the following table.

                                                                                    Issue Shares               Issue Bonds

Income before interest and taxes                               $2,000,000                  $2,000,000

Interest expense from bonds                                      _________                  _________

Income before income taxes                                      $                                  $

Income tax expense (30%)                                        _________                  _________

Net income                                                                 $________                  $________

Outstanding shares                                                     _________                       700,000

Earnings per share                                                      _________                  _________