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Larkspur, Inc.currently has 720,000...

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Question

Accounting

Larkspur, Inc.currently has 720,000 shares of common stock outstanding. Larkspur, Inc. is considering these two alternatives to finance its construction of a new $1.70 million plant:
1. Issuance of 170,000 shares of common stock at the market price of $10 per share.
2. Issuance of $1.70 million, 6% bonds at face value.
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Complete the table. (Round earnings per share to 2 decimal places, e.g. $2.66.)

Issue Stock

Issue Bonds
Income before interest and taxes $1,620,000 $1,620,000
Interest expense from bonds

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Income before income taxes

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Income tax expense (40%)

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Net income $

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 $

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Outstanding shares

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720,000
Earnings per share $

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 $

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LINK TO TEXT

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Indicate which alternative is preferable.

image Issuance of bondsIssuance of stock

is preferable.

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