Laci inc is considering two alternatives to finance its

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Laci Inc. is considering two alternatives to finance its construction of a new $2.00 million plant. (a) Issuance of 200,000 shares of common stock at the market price of $10 per share. (b) Issuance of $2,000,000, 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%) Net income $ $ Outstanding shares 500,000 Earnings per share $ $ Net income is lowerhigher if stock is used. However, earnings per share is higherlower than earnings per share if bonds are used because of the additional shares of stock that are outstanding.

Reference no: EM13481804

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