ii. Jackson Corporation is planning a $200,000 expansion to meet increasing demand for its product. Jackson Corporation

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Ii Jackson Corporation Is Planning A 200 000 Expansion To Meet Increasing Demand For Its Product Jackson Corporation 1 (101.6 KiB) Viewed 17 times

ii. Jackson Corporation is planning a $200,000 expansion to meet increasing demand for its product. Jackson Corporation is considering two plans to raise the money. Under Plan A, bonds with a contract rate of interest of 8% would be issued. Under Plan B, 10,000 additional ordinary shares would be issued at $20 per share. The corporation currently has 100,000 shares outstanding, and it expects to earn $300,000 per year before bond interest and income taxes. The net profit and return on investment for both plans is shown below: Earnings before bond interest and taxes $ Bond interest expense Income before taxes $ Income taxes Net profit $ Plan A Plan B 300,000 $ 300,000 (16,000) 284,000 $ 300,000 (99,400) (105,000) 184.600 $ 195.000 Equity Return on Equity $2.000.000 $2.200.000 9.23% 8.86% Required: Please compare the above two plans to raise the money. (4 marks)