Sleeping Bear Travel, Incorporated, is trying to decide between the following two alternatives to finance its new $24 million gaming center: Issue $24 million, 5% note. Issue 1 million shares of common stock for $24 per share with expected annual dividends of $1.20 per share. Required: 1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. 2. Answer the following questions for the current year: (a) By how much are interest payments higher if issuing the note? (b) By how much are dividend payments higher by issuing stock? (c) Which alternative results in higher earnings per share?
Sleeping Bear Travel, Incorporated, is trying to decide between the following two alternatives to finance its new $24 million gaming center: Issue $24 million, 5% note. Issue 1 million shares of common stock for $24 per share with expected annual dividends of $1.20 per share. Required: 1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. 2. Answer the following questions for the current year: (a) By how much are interest payments higher if issuing the note? (b) By how much are dividend payments higher by issuing stock? (c) Which alternative results in higher earnings per share?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Sleeping Bear Travel, Incorporated, is trying to decide between the following two alternatives to finance its new $24 million gaming center:
-
Issue $24 million, 5% note.
-
Issue 1 million shares of common stock for $24 per share with expected annual dividends of $1.20 per share.
Required:
1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative.
2. Answer the following questions for the current year:
(a) By how much are interest payments higher if issuing the note?
(b) By how much are dividend payments higher by issuing stock?
(c) Which alternative results in higher earnings per share?
Transcribed Image Text:Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each
alternative. (Enter your answers in dollars, not millions (i.e., $5.5 million should be entered as 5,500,000). Round your
"Earnings per Share" to 2 decimal places.)
Issue Note
Issue Stock
Operating income
$
9,900,000
$
9,900,000
Interest expense (on note only)
Income before tax
Income tax expense (40%)
Net income
$
Number of shares
2,900,000
3,900,000
Earnings per share (Net income / Number of shares)
Required 1
Required 2
Transcribed Image Text:Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Answer the following questions for the current year:
(a) By how much are interest payments higher if issuing the note?
(b) By how much are dividend payments higher by issuing stock?
(c) Which alternative results in higher earnings per share?
(Enter your answers in dollars, not millions (i.e., $5.5 million should be entered as 5,500,000).)
Show less A
a. By how much are interest payments higher if issuing the note?
b. By how much are dividend payments higher by issuing stock?
c. Which alternative results in higher earnings per share?
< Required 1
Required 2
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