Campbell,Inc

question 68

Essay

Campbell,Inc.has net income of $500,000 and 200,000 shares of common stock.The company is considering a project that 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.(Round your answers to two decimal points.)

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations using its current assets.