Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new...

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Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $16 million gaming center: Required: 1. Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for eac

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Answer 1

Answer #1

Calculate earning per share

	Issue bonds	Issue Stock
Operating income	9100000	9100000
Interest expense (bonds only)	1120000	0
Income before tax	7980000	9100000
Income tax expense	2793000	3185000
Net income	5187000	5915000
Number of share	2100000	3100000
earning per share	2.47	1.91

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Answer 2

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