Seattle Adventures Incorporated Is Trying To Decide Between The Following Two Alternatives To Finance Its New 33 Mill 1 (116.7 KiB) Viewed 49 times
Seattle Adventures, Incorporated, is trying to decide between the following two alternatives to finance its new $33 million gaming center: a. Issue $33 million, 5% note. 9. Issue 1 million shares of common stock for $33 per share with expected annual dividends of $1.65 per share. Required: 1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. 2. Answer the following questions for the current year: (a) By how much are interest payments higher if issuing the note? (b) By how much are dividend payments higher by issuing stock? (c) Which alternative results in higher earnings per share? Complete this question by entering your answers in the tabs below. 1 Required Required 2 Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answers in dollars, not millions (i.e., $5.5 million should be entered as 5,500,000). Round your "Earnings per Share" to 2 decimal places.) Show less Issue Issue Note Stock $ $ Operating income 10,800,000 10,800,000 Interest expense (on note only) Income before tax Income tax expense (40%) Net income $ 0 $ 0 Number of shares 3,800,000 4,800,000 Earnings per share (Net income / Number of shares) < Required 1 Required 2 >
Required Required 1 2 Answer the following questions for the current year: (a) By how much are interest payments higher if issuing the note? (b) By how much are dividend payments higher by issuing stock? (c) Which alternative results in higher earnings per share? (Enter your answers in dollars, not millions (i.e., $5.5 million should be entered as 5,500,000).) Show less a. By how much are interest payments higher if issuing the note? b. By how much are dividend payments higher by issuing stock? C. Which alternative results in higher earnings per share? < Required 1 Required 2
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