Watertown Inc. needs to raise $500,000 to expand the company. Watertown...
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Watertown Inc. needs to raise $500,000 to expand the company. Watertown Inc. is considering the issuance of either: 1. $500,000 of 6% bonds payable to borrow the money; or 2. 50,000 shares of common stock issued at $10 per share. Before any new financing, Watertown Inc. expects to earn net income of $400,000, and the company already has 200,000 shares of common stock outstanding. Watertown Inc. believes the expansion will increase income before interest and income tax by $200,000. The income tax rate is 40%. Which choice o raising capital should Watertown Inc. use if they are concerned with earnings per share? Watertown Inc. should borrow the money by issuing bonds payable since it will result in an earnings per share of $2.51. Watertown Inc. should issue 500,000 shares of common stock since it will result in an earnings per share of $2.40. O Watertown Inc. should issue 50,000 shares of common stock since it will result in an earnings per share of $1.65. Watertown Inc. should borrow the money by issuing bonds payable since it will result in an earnings per share of $2.60. None of the above
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