Diagnostic Corporation Is Considering Two Plans for Raising $2,000,000

question 38

Essay

Diagnostic Corporation is considering two plans for raising $2,000,000. The first plan involves the sale of 7%, 10-year bonds at the face value of $2,000,000. The second plan involves selling 100,000 shares of $20 par value common stock. Diagnostic Corporation currently has 150,000 shares of stock outstanding and net income of $1,500,000. Both plans are expected to generate additional income of $500,000 before interest and taxes. The income tax rate is 30%.
Calculate earnings per share for both plans.

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Definitions:

Storage

The process by which information is encoded, retained, and retrieved in the brain.

Tip-of-the-Tongue Phenomenon

A psychological phenomenon where a person is unable to recall a familiar word or name, despite feeling that it is just out of reach.

Classical Conditioning

A learning process that occurs when two stimuli are repeatedly paired; a response that is at first elicited by the second stimulus is eventually elicited by the first stimulus alone.

Repression

A defense mechanism in psychoanalytic theory where unpleasant or traumatic memories are unconsciously excluded from conscious thought.