Slotkin Health is considering two alternatives for the financing of some high technology medical equipment. These two alternatives are:
1. Issue 60,000 shares of $10 par value common stock at $50 per share.
2. Issue $3,000,000, 8%, 10-year bonds at par.
It is estimated that the company will earn $900,000 before interest and taxes as a result of acquiring the medical equipment. The company has an estimated tax rate of 40% and has 80,000 shares of common stock outstanding prior to the new financing.
Instructions
Determine the effect on net income and earnings per share for these two methods of financing.

Question

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The Answer of Slotkin Health is considering two alternatives for the financing of some high technology medical equipment. These two alternatives are:
1. Issue 60,000 shares of $10 par value common stock at $50 per share.
2. Issue $3,000,000, 8%, 10-year bonds at par.
It is estimated that the company will earn $900,000 before interest and taxes as a result of acquiring the medical equipment. The company has an estimated tax rate of 40% and has 80,000 shares of common stock outstanding prior to the new financing.
Instructions
Determine the effect on net income and earnings per share for these two methods of financing.

Slotkin Health Is Considering Two Alternatives for the Financing of Some