Exercise 11-14 Your answer is partially correct. Try again. Sandhill Co is consi

Question

Exercise 11-14 Your answer is partially correct. Try again. Sandhill Co is considering these two alternatives for financing the purchase of a fleet of airplanes 1. Issuc 61,000 shares of common stock at $4S per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2. Issue 14%, 10-year bonds at face value for $2,745,000. It is estimated that the company will earn $821 000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 40% and has 92,100 shares or common stock outstanding prior to the ne financing Determine the effect on net income and eanings per share for issuing stock and issuing bonds. Assume the nen shares or new bonds will be outstanding for the entire year. (Round earnings per share to 2 decimal places, e.g. $2.66.) Plan One Issue Stock Issuc Bonds Income Before Interest end Toses8210021000 Interest 384300 Income Before Taxs 921 Earnings Per Share Click if you would like to Show Work for this question: Oen Show Work Question Attempts: 2 of S used SAVE FOR LATER SUDMIT ANSNER

Explanation / Answer

Determine effect on net income and earnings per share :

Plan one issue stock Plan two issue bonds Income before interest and taxes 821000 821000 interest 384300 income before taxes 821000 436700 Income tax @40% 328400 174680 Net income 492600 262020 Common share outstanding 153100 92100 Earning per share 3.22 2.84

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