Moby Inc. is considering two alternatives to finance its construction of a new $2 million plant.
(a)Issuance of 200,000 shares of common stock at the market price of $10 per share.
(b)Issuance of $2 million, 8% bonds at face value.
Complete the following table, and indicate which alternative is preferable.
|
Issue Stock |
Issue Bond |
|
|
Income before interest and taxes |
$700,000 |
$700,000 |
|
Interest expense from bonds |
||
|
Income before income taxes |
||
|
Income tax expense (30%) |
$ |
$ |
|
Outstanding shares |
500,000 |
|
|
Earnings per share |