Ivanhoe Company is considering these two alternatives for financing the purchase of a fleet of airplanes:1.2.Issue 52,500 shares of common stock at $44 per share. (Cash dividends have not been paid nor is the payment of anycontemplated.)Issue 10%, 10-year bonds at face value for $2,310,000.It is estimated that the company will earn $809,200 before interest and taxes as a result of this purchase. The company has anestimated tax rate of 30% and has 92,000 shares of common stock outstanding prior to the new financing.Determine the effect on net income and earnings per share for (a) issuing stock and (b) issuing bonds. Assume the new shares or newbonds will be outstanding for the entire year. (Round earnings per share to 2 decimal places, e.g. 2.66.)Oî(a) Plan OneIssue Stock$(b) Plan TwoIssue Bonds

Earnings Per Share:Earnings per share is a fundamental measure of a company’s profitability and an…

Answered: Ivanhoe Company is considering these…

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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Kelly Corporation is considering the issuance of either debt or preferred stock to finance the purchase of a facility costing P1.5 million. The interest rate on the debt is 16 percent. Preferred stock has a dividend rate of 12 percent. The tax rate is 46 percent. REQUIREMENTS: 1. What is the annual interest payment? 2. What is the annual dividend payment? 3. What is the required income before interest and taxes to satisfy the dividend requirement??
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Larkspur, Inc. is considering these two alternatives to finance its construction of a new $1.74 million plant: 1. 2. Issuance of 174,000 shares of common stock at the market price of $10 per share. Issuance of $1.74 million, 5% bonds at face value.

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