The XON Oil Corporation plans to invest $1 million in oil exploration.The corporation is considering two plans to raise the money.Under Plan #1,9% bonds would be issued at par.Under Plan #2,additional common shares would be sold at $20 per share.The corporation currently has 300,000 common shares outstanding,and total equity of $3,000,000.The corporation expects to earn $700,000 each year before bond interest and taxes.Calculate net income under each plan (assume a 50% tax rate)and comment on the relative effects of each alternative.

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The Answer of The XON Oil Corporation plans to invest $1 million in oil exploration.The corporation is considering two plans to raise the money.Under Plan #1,9% bonds would be issued at par.Under Plan #2,additional common shares would be sold at $20 per share.The corporation currently has 300,000 common shares outstanding,and total equity of $3,000,000.The corporation expects to earn $700,000 each year before bond interest and taxes.Calculate net income under each plan (assume a 50% tax rate)and comment on the relative effects of each alternative.

The XON Oil Corporation Plans to Invest $1 Million in Oil