Practice Brief Exercise 2 Splish Brothers Inc. is considering these two alternat

Question

Practice Brief Exercise 2 Splish Brothers Inc. is considering these two alternatives to finance its construction of a new $1.45 milion plant: 1. Issuance of 145,000 shares of common stock at the market price of $10 per share. issuance of $1.45 million, 6% bonds at face value. Your answer is partially correct. Try again Complete the table. (Round earnings per share to 2 decimal places, e.g. $2.66.) Issue Stock Issue Bonds $1,570,000 $1,570,000 87000; 1483000 Income before interest and taxes Interest expense from bonds Income before income taxes 1570000 10205009639 549500; Income tax expense (35%) Net income 519050 Outstanding shares 670,000 Earnings per share

Explanation / Answer

OutStanding Shares

For Issue Stock : 670,000 + 145,000

For Issue Bonds : 670,000 (given)

Earning per share

For Issue Stock : $1,020,500 / 815,000

For Issue Bonds : $963,950 / 670,000

Kindly Note that the amount you have put in for income tax expenses & net income . Kindly rectify the same by putting above calculated amounts.

Issue Stock Issue Bonds Income before interest & tax $1570,000 $1570,000 Interest expense from bonds 87,000 Income before income tax 1570,000 1,483,000 Income tax expenses @35 % 549,500 519,050 Net Income 1,020,500 963,950

OutStanding Shares

For Issue Stock : 670,000 + 145,000

For Issue Bonds : 670,000 (given)

815,000 670,000

Earning per share

For Issue Stock : $1,020,500 / 815,000

For Issue Bonds : $963,950 / 670,000

$1.25 $1.44

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