Question

Question 5 Larkspur, Inc.currently has 830,000 shares of common stock outstanding Larkspur, Inc. is considering these two alternatives to finance its construction of a new$ 2.25 milion plant: 1 Issuance of 225,000shares of common stock at the market price of $ 10 per share. 2. issuance of $225 million,5% bondsatface value. Complete the table. (Round earnings per share to 2decimal places, eg. $2.66) Issue Stock Issue Bonds 1.730000 Income before interest and taxes Interest expense from bonds Income before income taxes Income tax expense( 30% Net income $1,730,000 Outstanding shares 830,000 Earnings per share eTextbook and Mcdia Attempts: 0 of 2used Check Answer

Answer 1

Table :

	Issue Stock	Issue Bonds
Income before interest and taxes	1730000	1730000
Interest expense on bonds	0	2250000*5% = 112500
Income before income taxes	1730000	1617500
Income tax expenses	519000	1617500*30% = 485250
Net income	1211000	1132250
Outstanding shares	1055000	830000
Earning per share	1.15	1.36