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Kingbird Airlines is considering two alternatives for the financing of a purchase of a fleet...

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Accounting

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

  1. Issue 118,500 shares of a common stock at $30 per share (Cash dividends have not been paid nor is the payment of any contemplated.)
  2. Issue 7% 10-year bonds at face value for $3,555,000

It is estimated that the company will earn $865,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 107,000 shares of common stock outstanding prior to the new financing.

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