Brief Exercise 11-11 (Part Level Submission) Splish Brothers Inc.currently has 6

Question

Brief Exercise 11-11 (Part Level Submission) Splish Brothers Inc.currently has 670,000 shares of common stock outstanding. 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 2, Issuance of $1.45 million, 6% bonds at face value (a) Complete the table. (Round earnings per share to 2 decimal places, e.g. $2.66.) Issue Stock Issue Bonds $1,570,000 8700 Income before interest and taxes Interest expense from bonds Income before income taxes Income tax expense (35%) $1,570,000 1570000 Net income Outstanding shares 670,000 Earnings per share LINK TO TEXT INTERACTIVE TUTORIAL Attempts: 0 of 3 used SAVE FOR LATER SUBMIT ANSWER

Explanation / Answer

Note :

Outstanding Shares when the shares are issued = 670,000 + 145,000

= 815,000 shares

Earnings Per Share = Net Income / Outstanding Shares.

Issue Stock Issue Bonds Income Before Interest and Taxes 1,570,000 1,570,000 Interest Expense from Bonds($1,450,000*6%) 0 87,000 Income Before Taxes 1,570,000 1,483,000 Income Tax Expense (35%) 549,500 519,050 Net Income 1,020,500 963,950 Outstanding Shares 815,000 670,000 Earnings Per Share 1.25 1.44

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