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Crane Company is considering these two alternatives for financing the purchase of a fleet of...

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Accounting

Crane Company is considering these two alternatives for financing the purchase of a fleet of airplanes.

1. Issue 51,500 shares of common stock at $ 49 per share. (Cash dividends have not been paid nor is the payment of any contemplated.)
2. Issue 14%, 15-year bonds at face value for $ 2,523,500.

It is estimated that the company will earn $ 802,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 40% and has 91,000 shares of common stock outstanding prior to the new financing. Determine the effect on net income and earnings per share for issuing stock and issuing bonds. Assume the new shares or new bonds will be outstanding for the entire year. (Round earnings per share to 2 decimal places, e.g. $2.66.)

----------------------------------------------

Plan One

Issue Stock

Plan Two

Issue Stock
Income Before Interest and Tax 802,000 820,000
Interest 0 353,290
Income Before Taxes 802,000
Income Tax Expense
Net Income/Loss
?????
Earnings Per Share

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