The Board of Directors of Lauber Corporation Are Considering Two

question 138

Essay

The board of directors of Lauber Corporation are considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issuance of $5,000,000, 6%, 20-year bonds at face value. Plan #2 would require the issuance of 200,000 shares of $5 par value common stock that is selling for $25 per share on the open market. Lauber Corporation currently has 100,000 shares of common stock outstanding and the income tax rate is expected to be 30%. Assume that income before interest and income taxes is expected to be $500,000 if the new factory equipment is purchased.
Instructions
Prepare a schedule that 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.

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Definitions:

Second Grade

An academic grade level in many educational systems designed for children who are typically seven to eight years old, focusing on foundational skills in various subjects.

Physical Attractiveness Stereotype

The inclination to believe that people who are visually appealing also have other appealing social characteristics.

General Expectation

A broad anticipation or belief about what will happen in the future, often based on past experiences or societal norms.

Familiarity Effect

A psychological phenomenon where people develop a preference for things simply because they are familiar with them.