RL Electronics is considering two plans for raising $3,000,000 to expand operations. Plan A is to issue 8% bonds payable, and plan B is to issue 100,000 shares of common stock. Before any new financing, RL Electronics has net income of $200,000 and 300,000 shares of common stock outstanding Management believes the company can use the new funds to eam additional income of $400,000 before interest and taxes. The income tax rate is 21%. Analyze the RL Electronics situation to determine which plan will result in higher eamings per share (Complete all answer boxes Enter "0" for any zero balances. Round earnings per share amounts to the nearest cent) Begin by completing the analysis below for plan A, then plan B. Net income before new project Expected income on the new project before interest and income tax expenses Less Interest expense Project income before income tax Less Income tax expense Project net income Net income with new project Earnings per share with new project Plan A Plan B Plan A: Issue $3,000,000 of 8% Bonds Payable 400,000
RL Electronics is considering two plans for raising $3,000,000 to expand operations. Plan A is to issue 8% bonds payable, and plan B is to issue 100,000 shares of common stock. Before any new financing, RL Electronics has net income of $200,000 and 300,000 shares of common stock outstanding Management believes the company can use the new funds to eam additional income of $400,000 before interest and taxes. The income tax rate is 21%. Analyze the RL Electronics situation to determine which plan will result in higher eamings per share (Complete all answer boxes Enter "0" for any zero balances. Round earnings per share amounts to the nearest cent) Begin by completing the analysis below for plan A, then plan B. Net income before new project Expected income on the new project before interest and income tax expenses Less Interest expense Project income before income tax Less Income tax expense Project net income Net income with new project Earnings per share with new project Plan A Plan B Plan A: Issue $3,000,000 of 8% Bonds Payable 400,000
Chapter3: Evaluation Of Financial Performance
Section: Chapter Questions
Problem 17P
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Transcribed Image Text:RL Electronics is considering two plans for raising $3,000,000 to expand operations. Plan A is to issue 8% bonds payable, and plan B is to issue 100,000 shares of common stock. Before any
←
new financing, RL Electronics has net income of $200,000 and 300,000 shares of common stock outstanding Management believes the company can use the new funds to earn additional income of
$400,000 before interest and taxes. The income tax rate is 21%. Analyze the RL Electronics situation to determine which plan will result in higher earnings per share. (Complete all answer boxes
Enter "0" for any zero balances. Round earnings per share amounts to the nearest cent)
Begin by completing the analysis below for plan A, then plan B.
Net income before new project
Expected income on the new project before
interest and income tax expenses
Less Interest expense
Project income before income tax
Less Income tax expense
Project net income
Net income with new project
Earrings per share with new project
Plan A
Plan B
Plan A: Issue $3,000,000
of 8% Bonds Payable
400,000
CETTE
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