After deciding to incorporate, each of the three investors recieves 20,000 shares at $2 par common stock on June 12 2011, in exchange for their co owned building and $100.000 total cash they contribute to the business. The next decision tha Mindy Oscar and Lori need to make is how to obtain financing for renovation and equipment. They understand the differnce between equity securities and debt securities, but do not understand the tax, net income and earnings per share consequences of equity versus debt financing on the future of their business.
INSTRUCTIONS Prepare notes for a discussion with the three entrepreneurs in which you will compare the consequences of using equity versus debt financing. As part of your notes, show differences in interest and tax expense assuming $1,400.000 is financed with common stock and then alternatively with debt. Assume that when common stock is used 140,000 shares will be issued. When debtis used, assume the interest rate on debt is 9%, the tax rate is 32% and income before interest and taxes is $300,000.