Larkspur, Inc.currently has 720,000 shares of common stock outstanding. Larkspur, Inc. is considering these two...
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Accounting
Larkspur, Inc.currently has 720,000 shares of common stock outstanding. Larkspur, Inc. is considering these two alternatives to finance its construction of a new $1.70 million plant:
1.
Issuance of 170,000 shares of common stock at the market price of $10 per share.
2.
Issuance of $1.70 million, 6% bonds at face value.
Complete the table. (Round earnings per share to 2 decimal places, e.g. $2.66.)
Issue Stock
Issue Bonds
Income before interest and taxes
$1,620,000
$1,620,000
Interest expense from bonds
Income before income taxes
Income tax expense (40%)
Net income
$
$
Outstanding shares
720,000
Earnings per share
$
$
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Indicate which alternative is preferable.
Issuance of bondsIssuance of stock
is preferable.
Answer & Explanation
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Issuance of bondsIssuance of stock