A3 Ivanhoe Car Rental is considering two alternatives for the financing of a purchase of a fleet of cars. These two alternatives are:1.2.Issue 51,600 shares of ordinary shares at ¥40 per share. (Cash dividends have not been paid nor is the payment of anycontemplated.)Issue 10%, 10-year bonds at face value for ¥2,064,000.It is estimated that the company will earn ¥688,000 before interest and taxes as a result of this purchase. The company has anestimated tax rate of 30% and has 77,400 shares of common stock outstanding prior to the new financing.Determine the effect on net income and earnings per share for these two methods of financing. (Round earnings per share to 2 decimalplaces, e.g. 2.25.)Net incomeEarnings per share¥Plan One Issue SharesPlan Two Issue Bonds

Capital structure means how the long term sources of finance have been arranged?Here we determine…

Answered: Ivanhoe Car Rental is considering two…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 5P

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Sheridan Car Rental is considering two alternatives for the financing of a purchase of a fleet of cars. These two alternatives are: 1. Issue 55,200 shares of ordinary shares at ¥40 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2. Issue 9%, 10-year bonds at face value for ¥2,208,000. It is estimated that the company will earn ¥736,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 82,800 shares of common stock outstanding prior to the new financing. Determine the effect on net income and earnings per share for these two methods of financing..
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