Sheridan Car Rental is considering two alternatives for the financing of a purchase of a...
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Sheridan Car Rental is considering two alternatives for the financing of a purchase of a fleet of cars. These two alternatives are:
| 1. | Issue 55,200 shares of ordinary shares at 40 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) | |
| 2. | Issue 9%, 10-year bonds at face value for 2,208,000. |
It is estimated that the company will earn 736,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 82,800 shares of common stock outstanding before the new financing. Determine the effect on net income and earnings per share for these two methods of financing.
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