Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 10 - Reporting and Analyzing Liabilities - Brief Exercises: BE10-5

Answer

Income before interest and taxes: Issue Stock - 15,00,000 issue Bond - 15,00,000 Interest expense from bonds: issue Bond - 1,20,000 Income before income taxes: Issue Stock - 15,00,000 issue Bond - 13,80,000 Income Tax expenses -30%: Issue Stock - 4,50,000 issue Bond - 4,14,000 Net Income: Issue Stock - 10,50,000 issue Bond - 9,66,000 Outstanding shares: Issue Stock - 9,00,000 issue Bond - 7,00,000 Earnings per share: Issue Stock - 1.167 issue Bond - 1.380

Work Step by Step

Since the Earnings per share is more in case of Issue of Bonds, this alternative should be preferable.
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