Banks Company Is Considering Two Alternatives to Finance Its Purchase

question 100

Essay

Banks Company is considering two alternatives to finance its purchase of a new $4,000,000 office building.
(a) Issue 400,000 ordinary shares at $10 per share.
(b) Issue 8%, 10-year bonds at par ($4,000,000).
Income before interest and taxes is expected to be $3,000,000. The company has a 30% tax rate and has 800,000 ordinary shares 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:

Psychological Research

The scientific study of the human mind, behaviors, and emotions.

Deception

The act of misleading or falsely representing information to alter perceptions or actions of others.

Ethical Principles

The guiding concepts that inform moral judgment and conduct, determining what is right or wrong in various scenarios.

Psychological Research

The scientific study of the mind and behavior through controlled experiments, observation, and analysis.