Ryan Small, a president of Janis Corporation, hired you as a financial consultant to analyze three propels made by the board of directors to raise additional funds of $3,000,000.
The Plans
- Issued 12% preferred stock
- Issued additional common stock at $10 par.
- Issue 14%, 20 year bonds
Given
- Tax rate, 48%
- Estimated corporation earnings, $1,800,000 annually before bond interest and taxes.
Assume
- Before plan, 300,000 shares of $10 par common stock outstanding. All new stock would be issued at par.Please submit a written recommendation with supporting data to Mr. Small as soon as possible.
A. Read the complete problem and submit the written recommendation along with a table showing the earnings per share.
B. Suppose the company decided on issuing the bonds in the 3rd plan as of January 1, 2013 at 102, with semiannual payments made January 1 and July 1. Journalize the issuance of the bonds and the first semiannual interest payment.