Carla Vista Inc. is considering two alternatives to finance its construction of a new $1.40 million plant. (a) Issuance of 140,000 shares of common stock at the market price of $10 per share. (b) Issuance of $1,400,000, 7% bonds at face value. Complete the following table. (Round earnings per share to 2 decimal places, e.g. 0.25.) Income before interest and taxes Interest expense from bonds Income before income taxes Income tax expense (40%) Net income Outstanding shares Earnings per share $ tA tA $ Indicate which alternative is preferable. Issue Stock $600,000 $ +A Net income is because of the additional shares of stock that are outstanding. $ LA if stock is used. However, earnings per share is Issue Bond $600,000 460,000 than earnings per share if bon
Carla Vista Inc. is considering two alternatives to finance its construction of a new $1.40 million plant. (a) Issuance of 140,000 shares of common stock at the market price of $10 per share. (b) Issuance of $1,400,000, 7% bonds at face value. Complete the following table. (Round earnings per share to 2 decimal places, e.g. 0.25.) Income before interest and taxes Interest expense from bonds Income before income taxes Income tax expense (40%) Net income Outstanding shares Earnings per share $ tA tA $ Indicate which alternative is preferable. Issue Stock $600,000 $ +A Net income is because of the additional shares of stock that are outstanding. $ LA if stock is used. However, earnings per share is Issue Bond $600,000 460,000 than earnings per share if bon
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 5P
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![Carla Vista Inc. is considering two alternatives to finance its construction of a new $1.40 million plant.
(a) Issuance of 140,000 shares of common stock at the market price of $10 per share.
(b)
Issuance of $1,400,000, 7% bonds at face value.
Complete the following table. (Round earnings per share to 2 decimal places, e.g. 0.25.)
Income before interest and taxes
Interest expense from bonds
Income before income taxes
Income tax expense (40%)
Net income
Outstanding shares
Earnings per share
$
Indicate which alternative is preferable.
Issue Stock
$600,000
Net income is
because of the additional shares of stock that are outstanding.
$
V if stock is used. However, earnings per share is
Issue Bond
$600,000
460,000
V than earnings per share if bonds are used](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe30699be-2882-4a27-acce-afcc593a9b43%2Fe74b95ba-2cfc-4bf2-a1fe-42963218c7a5%2Fvzj2hxg_processed.png&w=3840&q=75)
Transcribed Image Text:Carla Vista Inc. is considering two alternatives to finance its construction of a new $1.40 million plant.
(a) Issuance of 140,000 shares of common stock at the market price of $10 per share.
(b)
Issuance of $1,400,000, 7% bonds at face value.
Complete the following table. (Round earnings per share to 2 decimal places, e.g. 0.25.)
Income before interest and taxes
Interest expense from bonds
Income before income taxes
Income tax expense (40%)
Net income
Outstanding shares
Earnings per share
$
Indicate which alternative is preferable.
Issue Stock
$600,000
Net income is
because of the additional shares of stock that are outstanding.
$
V if stock is used. However, earnings per share is
Issue Bond
$600,000
460,000
V than earnings per share if bonds are used
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