See attachment Required information[The following information applies to the questions displayed below.]Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $15 million gamingcenter:a. Issue $15 million, 5% note.b. Issue 1 million shares of common stock for $15 per share.Required:1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each a(Enter your answers in dollars, not millions. (i.e., $5.5 million should be entered as 5,500,000). Round your "Earningsto 2 decimal places.)Issue NoteIssue StockOperating income9,000,000 S9,000,000Interest expense (note only)Income before taxIncome tax expense (40%)Net income0.Number of shares2,000,0003,000,000Earnings per share (Net income /# of shares)%24%24

Particulars Issue Note Issue Stock Operating Income $9000000 $9000000 Interest expense (Note…

Answered: Required: 1. Assuming the note or…

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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You hold a 25% common stock interest in YouOwnIt, a family-owned construction equipment company. Your sister, who is the manager, has proposed an expansion of plant facilities at an expected cost of 26,000,000. Two alternative plans have been suggested as methods of financing the expansion. Each plan is briefly described as follows: Plan 1.Issue 26,000,000 of 20-year, 8% notes at face amount Plan 2.Issue an additional 550,000 shares of 10 par common stock at 20 per share, and 15,000,000 of 20-year, 8% notes at face amount The balance sheet as of the end of the previous fiscal year is as follows: Net income has remained relatively constant over the past several years. The expansion program is expected to increase yearly income before bond interest and income tax from 2,667,000 in the previous year to 5,000,000 for this year. Your sister has asked you, as the company treasurer, to prepare an analysis of each financing plan. 1. Prepare a table indicating the expected earnings per share on the common stock under each plan. Assume an income tax rate of 40%. Round to the nearest cent. 2. a. Discuss the factors that should be considered in evaluating the two plans. b. Which plan offers greater benefit to the present stockholders? Give reasons for your opinion.
Begin with the partial model in the file Ch02 P21 Build a Model.xlsx on the textbooks Web site. a. Using the financial statements shown here for Lan Chen Technologies, calculate net operating working capital, total net operating capital, net operating profit after taxes, free cash flow, and return on invested capital for 2020. The federal-plus-state tax rate is 25%. b. Assume there were 15 million shares outstanding at the end of 2019, the year-end closing stock price was 65 per share, and the after-tax cost of capital was 10%. Calculate EVA and MVA for 2020. Lan Chen Technologies: Income Statements for Year Ending December 31 (Millions of Dollars) Lan Chen Technologies: December 31 Balance Sheets (Thousands of Dollars)
Brower Co. is considering the following alternative financing plans: Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that income before bond interest and income tax is 2,000,000.
Required information [The following information applies to the questions displayed below.] Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $17 million gaming center: a. Issue $17 million of 6% bonds at face amount.b. Issue 1 million shares of common stock for $17 per share. Required:1. Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answer in dollars, not millions. (i.e., $5.5 million should be entered as 5,500,000). Round your "Earnings per Share" to 2 decimal places. Round your "Earnings per Share" to 2 decimal places.)
Sleeping Bear Travel, Incorporated, is trying to decide between the following two alternatives to finance its new $24 million gaming center: Issue $24 million, 5% note. Issue 1 million shares of common stock for $24 per share with expected annual dividends of $1.20 per share. Required: 1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. 2. Answer the following questions for the current year: (a) By how much are interest payments higher if issuing the note?(b) By how much are dividend payments higher by issuing stock?(c) Which alternative results in higher earnings per share?
Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $33 million gaming center: Issue $33 million, 5% note. Issue 1 million shares of common stock for $33 per share.
Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $34 million gaming center: a. Issue $34 million of 6% bonds at face amount.b. Issue 1 million shares of common stock for $34 per share. 1. Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answer in dollars, not millions. (i.e., $5.5 million should be entered as 5,500,000). Round your "Earnings per Share" to 2 decimal places. Round your "Earnings per Share" to 2 decimal places.) Issue Bonds Issue stock Operating income 10,900,000 10,900,000 Interest expense (bonds only) Income before tax Income tax expense (40%) Net Income Number of shares 3,900,000 4,900,000 Earnings per share

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