Bagan Corporation, a profitable growth company with 200,000 shares of common stock outstanding, is in need of approximately $40 million in new funds to finance required expansion. Currently, there are no other equities outstanding. Management has three options open: a. Sell $40 million of 12-per cent bonds at face value. b. Sell shares of 10% preferred stock: 400,000 shares at $100 each (dividend $10 per share). c. Sell another 200,000 shares of common stock at $200 each. Operating income (before interest and income taxes) on completion of the expansion is expected to average $12 million per year; the income tax rate is 50%. Required: 1. Complete the schedule below and calculate the earnings per share of common stock. 12% Preferred Common
Bagan Corporation, a profitable growth company with 200,000 shares of common stock outstanding, is in need of approximately $40 million in new funds to finance required expansion. Currently, there are no other equities outstanding. Management has three options open: a. Sell $40 million of 12-per cent bonds at face value. b. Sell shares of 10% preferred stock: 400,000 shares at $100 each (dividend $10 per share). c. Sell another 200,000 shares of common stock at $200 each. Operating income (before interest and income taxes) on completion of the expansion is expected to average $12 million per year; the income tax rate is 50%. Required: 1. Complete the schedule below and calculate the earnings per share of common stock. 12% Preferred Common
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation
Section: Chapter Questions
Problem 2P
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Transcribed Image Text:Bagan Corporation, a profitable growth company with 200,000 shares
of common stock outstanding, is in need of approximately $40 million
in new funds to finance required expansion. Currently, there are no
other equities outstanding. Management has three options open:
a. Sell $40 million of 12-per cent bonds at face value.
b. Sell shares of 10% preferred stock: 400,000 shares at $100 each
(dividend $10 per share).
c. Sell another 200,000 shares of common stock at $200 each.
Operating income (before interest and income taxes) on completion of
the expansion is expected to average $12 million per year; the income
tax rate is 50%.
Required:
1. Complete the schedule below and calculate the earnings per share
of common stock.
12%
Preferred
Common
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