Brief Exercise 11-11 Metlock, Inc.currently has 740,000 shares of common stock o

Question

Brief Exercise 11-11 Metlock, Inc.currently has 740,000 shares of common stock outstanding. Metlock, Inc. is considering these two alternatives to finance its construction of a new $1.80 million plant: 1. Issuance of 180,000 shares of common stock at the market price of $10 per share. 2. Issuance of $1.80 million, 8% bonds at face value. Complete the table. (Round earnings per share to 2 decimal places, e.g. $2.66.) Issue Stock Issue Bonds Income before interest and taxes $1,640,000 $1,640,000 Interest expense from bonds Income before income taxes Income tax expense (40%) Net income $ $ Outstanding shares 740,000 Earnings per share $ $ LINK TO TEXT Indicate which alternative is preferable. is preferable. Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Issue Stock Issue Bonds Income before interest and taxes 1640000 1640000 Interest expense from bonds 0 144000 Income before income taxes 1640000 1496000 Income tax expense (40%) 656000 598400 Net income 984000 897600 Outstanding shares 920000 740000 Earnings per share 1.07 1.21 Issue Bonds is preferable

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