Brief Exercise 11-11 (Part Level Submission) Kingbird, Inc.currently has 600,000

Question

Brief Exercise 11-11 (Part Level Submission) Kingbird, Inc.currently has 600,000 shares of common stock outstanding. Kingbird, Inc. is considering these two alternatives to finance its construction of a new $1.00 milion plant: 1. 2. Issuance of 100,000 shares of common stock at the market price of $10 per share. Issuance of $1.00 million, 5% bonds at face value. (a) Complete the table. (Round earnings per share to 2 decimal places, e.g. $2.66. Issue Stock Issue Bonds Income before interest and taxes Interest expense from bonds Income before income taxes Income tax expense (30%) $1,500,000$1,500,000 Net income Outstanding shares 600,000 Earnings per share LINK TO TEXT INTERACTIVE TUTORIAL

Explanation / Answer

Note :

Earnings Per Share = Net Income / Outstanding Shares

Outstanding Shares in case of share issue= 600,000 shares +100,000shares

= 700,000 shares

Issue Stock Issue Bonds Income Before Interest and Taxes 1,500,000 1,500,000 Interest Expense from Bonds($1,000,000*5%) 0 50,000 Income Before Taxes 1,500,000 1,450,000 Income Tax Expense (30%) 450,000 435,000 Net Income 1,050,000 1,015,000 Outstanding Shares 700,000 600,000 Earnings Per Share 1.50 1.69

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