Suppose Zorro Corporation has net income of $750,000 and 170,000 common shares outstanding before a...
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Suppose Zorro Corporation has net income of $750,000 and 170,000 common shares outstanding before a new project. The company needs $1,000,000 for expansion, and management is considering two financing plans: Plan 1 is to issue $1,000,000 of 10 percent bonds. Plan 2 is to issue 55,000 common shares for $1,000,000. Zorro Corporation management believes the new cash can be invested in operations to earn income of $350,000 before interest and taxes. Given the corporation's tax rate of 45 percent, which is the better plan? Why? (Round earnings per share amounts to the nearest cent.) seems more favourable because has an EPS of $ , which is than the EPS of which is $ However, the company's V must also be considered
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