Shares of common stock outstanding prior to new financing


Northeast Airlines is considering two alternatives for the financing of a purchase of a fleet of airplanes. These two alternatives are:

Issue 60,000 shares of common stock at $45 per share. (Cash dividends have not been paid nor is the payment of any contemplated).

Issue 10%, 10-year bonds at par for $2,700,000.

It is estimated that the company will earn $800,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 90,000 shares of common stock outstanding prior to the new financing.

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Accounting Basics: Shares of common stock outstanding prior to new financing
Reference No:- TGS077509

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