Banks Company is considering two alternatives to finance its purchase of a new $4,000,000 office building

Accounting Mar 09, 2021

Banks Company is considering two alternatives to finance its purchase of a new $4,000,000 office building.

(a) Issue 400,000 ordinary shares at $10 per share.

(b) Issue 8%, 10-year bonds at par ($4,000,000).

Income before interest and taxes is expected to be $3,000,000. The company has a 30% tax rate and has 600,000 ordinary shares outstanding prior to the new financing.

Instructions

Calculate each of the following for each alternative:

(1) Net income.

(2) Earnings per share.

Expert Solution

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