The Board of Directors of Bobcat Corporation Is Considering Two

question 13

Essay

The board of directors of Bobcat Corporation is considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issue of $ 4,000,000, 6%, 20-year bonds at face value. Plan #2 would require the issue of 200,000 common shares for $ 20 per share. Bobcat Corporation currently has 100,000 common shares issued at a book value of $ 20 each and retained earnings of $ 750,000. The income tax rate is expected to be 30%. Assume that income before interest and income taxes is expected to be $ 800,000 if the new factory equipment is purchased. Assume that the debt or equity will be issued at the beginning of the year.
Instructions
a) Prepare a schedule that shows the expected profit, earnings per share, and return on equity (using year-end balances) under each of the plans that the board of directors is considering.
b) If the board of directors' stated goal is to maximize the common shareholders' return, which alternative is preferable? If the board's stated goal is to maximize solvency, which alternative is preferable?

Grasp the importance of developing subordinates and using delegation as a development tool.

Learn about John Holland's theory of personality and occupational types and its relevance to occupational paths.

Recognize the significance of unconventional choices in leadership and their transformative potential.

Understand the common reasons for the short lifespan of businesses and the importance of successors.

---

Definitions:

Milgram Experiment

A psychological experiment conducted by Stanley Milgram in the 1960s to study obedience to authority, where participants were instructed to administer electric shocks to another person.

Stanford University Prison Experiment

A psychological study conducted by Philip Zimbardo in 1971 at Stanford University, where students were assigned roles of prisoners and guards to explore the effects of perceived power.

Generalization

Drawing a conclusion about a certain characteristic of a population based on a sample from it.

Logical Support

The provision of reasons or evidence to justify a claim or argument.