Week 1 Discussion 1

Week 1 Discussion 1 - BORROW AT 6% PLAN B ISSUE COMMON...

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Decision Case #2 (30-40 min.) Net income before new project $1,200,000 $1,200,000 $1,200,000 1,000,000 1,000,000 1,000,000 Less: Interest expense 240,000 0 0 Project income before income tax 760,000 1,000,000 1,000,000 Less: Income tax expense (40%) 304,000 400,000 400,000 Project net income 0 0 250,000 Net income with new project 456,000 600,000 350,000 Earnings per share 1,656,000 1,800,000 1,550,000 Totals $5,616,000 $6,000,000 $5,750,000 Earnings per share including new project: Plan A $4.14 Plan B $3.60 Plan C $3.88 PLAN A
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Unformatted text preview: BORROW AT 6% PLAN B ISSUE COMMON STOCK PLAN C ISSUE $2.50 NONVOTING PREFERRED STOCK Expected income on the new project before interest and income tax expenses Req. 2 Email Designer would get the best earnings per share from Plan A with $4.14 per share compared to $3.60 with Plan B and $3.88 with Plan C. Plan A also gives Email Designers the ability to keep the business family owned by issuing a debt, compared to both Plans A & B, which both of those plans offer part of the ownership to outsiders....
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This note was uploaded on 04/20/2011 for the course ACC 206 taught by Professor Any during the Spring '11 term at Ashford University.

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Week 1 Discussion 1 - BORROW AT 6% PLAN B ISSUE COMMON...

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