Table 15-8
Uptown Inc. pays income tax at the rate of 30%. The president is considering an investment in new factory equipment of $500,000. He expects the income before taxes from the investment to be $55,000 annually. One option is to raise the money by issuing bonds that have a stated interest rate of 7%. Alternatively, Uptown Inc. can raise the $500,000 by issuing 100,000 common shares. Currently there are 200,000 common shares outstanding. The current annual net income(after interest and income tax), before considering the investment, is $730,000 per year.
-Refer to Table 15-8.What is the earnings per common share if bonds are issued?

Question

Quizplus · Accepted Answer

C) ($730,000 + (($55,000 - ($500,000 × 0.07)) × 0.70))/200,000 shares = $3.71

Table 15-8 Uptown Inc. Pays Income Tax at the Rate of 30