Campbell Inc

question 60

Essay

Campbell Inc. has net income of $500,000 and 200,000 shares of common stock. The company is considering a project which requires $800,000 and is considering two options:
• Option 1 is to borrow $800,000 at 12%.
• Option 2 is to issue 100,000 shares of common stock for $800,000.
Considering all relevant facts and figures, Campbell's management is of the opinion that the funds raised can be used to increase income before interest and taxes by $300,000 each year. The company estimates income tax expense to be 40%. Analyze the Campbell situation to determine which plan will result in higher earnings per share.

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Definitions:

Gynecoid Pelvis

A type of female pelvis known for its round and broad shape, considered ideal for childbirth.

Pelvis

The pelvis is the lower part of the torso, enclosed by the pelvic bones and containing the reproductive organs, bladder, and rectum.

Flexion

The action of bending a limb or joint, which decreases the angle between the bones of the limb at the joint.

Extension

A movement that increases the angle between two body parts, or the ability to straighten or stretch out a limb or body part.