8.The Tusquittee Company wants to expand and is considering options for raisingadditional cash. The company estimates net income before the expansion of$250,000 in 2019 and that the expansion will provide additional operating incomeof $75,000 in 2019. The company intends to sell the shares of treasury stock, souse issued shares for the analysis rather than current shares outstanding. Comparethese options, assuming a 30% income tax rate:Plan 1: Issue 10,000 additional shares of common stock for $20 per sharePlan 2: Issue $200,000 in 20-year, 12% bonds payable.Which option will contribute more net income in 2019? Which option provides thehighest EPS? 674Plan 2:Plan 1:675676Issue $200,000 of 12%Bonds PayableIssue $200,000 of Common677678Stock679680681682683684685686687688689690691692693

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Asked Dec 6, 2019
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Please see the photos. The first one is the problem, the second one is the format it is suppose to be on.
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8.
The Tusquittee Company wants to expand and is considering options for raising
additional cash. The company estimates net income before the expansion of
$250,000 in 2019 and that the expansion will provide additional operating income
of $75,000 in 2019. The company intends to sell the shares of treasury stock, so
use issued shares for the analysis rather than current shares outstanding. Compare
these options, assuming a 30% income tax rate:
Plan 1: Issue 10,000 additional shares of common stock for $20 per share
Plan 2: Issue $200,000 in 20-year, 12% bonds payable.
Which option will contribute more net income in 2019? Which option provides the
highest EPS?
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8. The Tusquittee Company wants to expand and is considering options for raising additional cash. The company estimates net income before the expansion of $250,000 in 2019 and that the expansion will provide additional operating income of $75,000 in 2019. The company intends to sell the shares of treasury stock, so use issued shares for the analysis rather than current shares outstanding. Compare these options, assuming a 30% income tax rate: Plan 1: Issue 10,000 additional shares of common stock for $20 per share Plan 2: Issue $200,000 in 20-year, 12% bonds payable. Which option will contribute more net income in 2019? Which option provides the highest EPS?

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674
Plan 2:
Plan 1:
675
676
Issue $200,000 of 12%
Bonds Payable
Issue $200,000 of Common
677
678
Stock
679
680
681
682
683
684
685
686
687
688
689
690
691
692
693
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674 Plan 2: Plan 1: 675 676 Issue $200,000 of 12% Bonds Payable Issue $200,000 of Common 677 678 Stock 679 680 681 682 683 684 685 686 687 688 689 690 691 692 693

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Expert Answer

Step 1

The plan 1 provides the highest net income as under this plan the company not need to pay the fixed financial charg...

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Net Income Particulars Plan 1 Plan 2 |Operating income |() Interest (200,000*12%) Income before taxes S 75,000 $ 75,000 $0 $ 24,000 $ 75,000 $ 51,000 S 22,500 $ 15,300 ) Taxes |Net income $ 52,500 $ 35,700

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