The Board of Directors of Les Corporation Is Considering Two

question 100

Essay

The board of directors of Les Corporation is considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issuance of $5000000 6% 20-year bonds at face value. Plan #2 would require the issuance of 100000 shares of $5 par value common stock which is selling for $50 per share on the open market. Les Corporation currently has 100000 shares of common stock outstanding and the income tax rate is expected to be 35%. Assume that income before interest and income taxes is expected to be $500000 if the new factory equipment is purchased.
Instructions
Prepare a schedule which shows the expected net income after taxes and the earnings per share on common stock under each of the plans that the board of directors is considering.

Recognize reporting requirements for penalties on early withdrawal from financial instruments.

Distinguish between alimony and child support payments for tax purposes.

Grasp the deductibility of self-employed health insurance premiums.

Understand the qualifying criteria for educator expense deductions.

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Definitions:

Selling Liquor

The act or business of distributing alcoholic beverages for consumption, regulated by various laws and licenses.

Criminal Liability

Legal responsibility for committing acts deemed offenses against society or the state, subject to legal penalties.

Underage Person

An Underage Person is an individual who has not reached the legal age of majority, thus holding certain restrictions in legal rights and responsibilities.

Social Organization

The ordered structure of relationships and social arrangements within a group or society, including the established patterns of interaction and social relations that govern behavior.