Eastern Inc is in need of $5,000,000 to expand their operations into Western Canada.The projected income statement for the first year of operation after the expansion is shown below.It does not include any of the financing costs.A projected partial balance sheet after the expansion, but before the addition of the new financing, has also been prepared.Eastern is considering three alternatives to raise the $5,000,000.
i) Borrow the full amount from the bank in the form of a long-term note.Interest would be 8% per annum, and repayments would start in two years.
ii) Issue common shares; the recent average market price has been $50.For the last three years they have paid annual dividends of $0.10 per share.
iii) Issue cumulative preferred shares with a $2 annual dividend at $80 per share. Eastern Inc
Projected Income Statement
$\begin{array}{lr}
\text { Revenues } & \$ 7,500,000 \
\text { Expenses } & 5,000,000 \
\text { Income tax expense } & \$ 1.750,000 \
\text { Net income } & \$ 15000
\end{array}$ Required:

Question

Eastern Inc is in need of $5,000,000 to expand their operations into Western Canada.The projected income statement for the first year of operation after the expansion is shown below.It does not include any of the financing costs.A projected partial balance sheet after the expansion, but before the addition of the new financing, has also been prepared.Eastern is considering three alternatives to raise the $5,000,000.
i) Borrow the full amount from the bank in the form of a long-term note.Interest would be 8% per annum, and repayments would start in two years.
ii) Issue common shares; the recent average market price has been $50.For the last three years they have paid annual dividends of $0.10 per share.
iii) Issue cumulative preferred shares with a $2 annual dividend at $80 per share. Eastern Inc
Projected Income Statement
$\begin{array}{lr}
\text { Revenues } & \$ 7,500,000 \
\text { Expenses } & 5,000,000 \
\text { Income tax expense } & \$ 1.750,000 \
\text { Net income } & \$ 15000
\end{array}$  Required:

Quizplus · Accepted Answer

The Answer of Eastern Inc is in need of $5,000,000 to expand their operations into Western Canada.The projected income statement for the first year of operation after the expansion is shown below.It does not include any of the financing costs.A projected partial balance sheet after the expansion, but before the addition of the new financing, has also been prepared.Eastern is considering three alternatives to raise the $5,000,000.
i) Borrow the full amount from the bank in the form of a long-term note.Interest would be 8% per annum, and repayments would start in two years.
ii) Issue common shares; the recent average market price has been $50.For the last three years they have paid annual dividends of $0.10 per share.
iii) Issue cumulative preferred shares with a $2 annual dividend at $80 per share. Eastern Inc
Projected Income Statement
$\begin{array}{lr}
\text { Revenues } & \$ 7,500,000 \
\text { Expenses } & 5,000,000 \
\text { Income tax expense } & \$ 1.750,000 \
\text { Net income } & \$ 15000
\end{array}$  Required:

Eastern Inc Is in Need of $5,000,000 to Expand Their