Question

Brief Exercise 11-11 Marin Inc. currently has 620,000 shares of common stock outstanding. Marin Inc. is considering these two alternatives to finance its construction of a new $1.20 milion pla 1. 2. Issuance of 120,000 shares of common stock at the market price of $10 per share. Issuance of $1.20 million, 8% bonds at face value. Complete the table. (Round earnings per share to 2 decimal places, e.g. $2.66.) Issue Stock $1,520,000 Issue Bonds $1,520,000 Income before interest and taxes Interest expense from bonds Income before income taxes Income tax expense (35%) Net income Outstanding shares 620,000 Earnings per share Indicate which alternative is preferable. is preferable.

Answer 1

Answer :

	Issue stock	Issue Bonds
Income before interest and taxes	$1,520,000	$1,520,000
Interest expense from bonds ($1,200,000*8)	0	$ 96,000
Income before taxes	$1,520,000	$1,424,000
Income tax expense (30%)	$ 456,000	$ 427,200
Net income	$1,064,000	$ 996,800
Outstanding shares (620,000+120,000 shares)	740,000	620,000
Earning per share =(Net income/outstanding shares)	$1.44	$1.61