Sophia Company Is Considering Two Alternatives to Finance Its Purchase

question 12

Essay

Sophia Company is considering two alternatives to finance its purchase of a new $4,000,000 office building.
(a) Issue 400,000 shares of common stock at $10 per share.
(b) Issue 7%, 10-year bonds at par ($4,000,000).
Income before interest and taxes is expected to be $3,500,000. The company has a 30% tax rate and has 600,000 shares of common stock outstanding prior to the new financing.
Instructions
Calculate each of the following for each alternative:
(1) Net income.
(2) Earnings per share.

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Definitions:

Adequate Tissue Oxygenation

The sufficient delivery of oxygen to tissues in the body, essential for cellular metabolism and overall health.

Alveolar-Capillary Gas Exchange

The process by which oxygen is taken into the body and carbon dioxide is expelled, occurring across the alveolar and capillary membranes in the lungs.

Sleep Apnea

A sleep disorder characterized by pauses in breathing or periods of shallow breathing during sleep, often leading to disrupted sleep and other health issues.

Nasotracheal Suctioning

A procedure to remove secretions from the patient's airway through the nose and trachea to maintain airway patency and facilitate breathing.