Question

Brief Exercise 11-13 (Part Level Submission) Sage ill Inc. is considering these two alternatives to finance its construction of a new $1.05 million plant: NMENT RESOURCES ter 11 Homswork rief Exercise 11-04 ief Exercise 11-13 Part Level Submission) Issuance of 105,000 shares of common stock at the market price of $10 per share. 1. 2. Issuance of $1.05 million, 5% bonds at face value. 2o It Review 11-01a Do It Review 11-02b Do ItL Beview 11-03 Exercise 11-11 Complete the table. (Round earnings per share to 2 decimal places, e.g. $2.66.) view Score eview Results by Study pbiective Issue Stock Issue Bonds Income before interest and taxes $1,651,000 $1,651,000 Toterest expene from bands Tecome beforeincome taxes tnicome taxexpense (30% ) Net income Outstanding shares 805,000 Earnings per share INK TO a .200201 nwiescJsAohte Reserved. A Division of 1chn Wile&Sans Ts ye here to search

Answer 1

Particulars	Issue stock ($)	Issue bonds ($)
Income before interest and taxes LESS: interest expense on bonds@5%i.e 1050000*5%	1651000 Nil	1651000 (52500)
Income before income tax LESS:Income tax expense @30%	1651000 (495300)	1598500 (479550)
Net income	1155700	1118950
Total outstanding shares Earnings per share= net income/outstanding shares                                  =   1155700/805000                                  = 1.4357 Earnings per share comes to		805000 1.4357(per share)