Martin Corporation is considering two alternatives to finance its purchase of a new $4,000,000 office building.
(a) Issue 400,000 shares of common stock at $10 per share.
(b) Issue 7%, 10-year bonds at par ($4,000,000).
Income before interest and taxes is expected to be $3,500,000. The company has a 30% tax rate and has 600,000 shares of common stock outstanding prior to the new financing.
Instructions
Calculate each of the following for each alternative:
(1) Net income.
(2) Earnings per share.