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The board of directors of Crane Corporation is considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issuance of $5,100,000, 8%, 20-year bonds at face value. Plan #2 would require the issuance of 100,000 shares of $5 par value common stock which is selling for $51 per share on the open market. Crane Corporation currently has 100,000 shares of common stock outstanding and the income tax rate is expected to be 30%. Assume that income before interest and income taxes is expected to be $618,000 if the new factory equipment is purchased. Prepare a schedule which shows the expected net income after taxes and the earnings per share on common stock under each of the plans that the board of directors is considering. (Do not leave any answer field blank. Enter 0 for amounts. Round earnings per share to 2 decimal places, e.g. 5.25.) Income Before Interest and Taxes : Interest Expense $ Plan #1 Issue Bonds Plan #2 Issue Stock

The board of directors of Crane Corporation is considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issuance of $5,100,000, 8%, 20-year bonds at face value. Plan #2 would require the issuance of 100,000 shares of $5 par value common stock which is selling for $51 per share on the open market. Crane Corporation currently has 100,000 shares of common stock outstanding and the income tax rate is expected to be 30%. Assume that income before interest and income taxes is expected to be $618,000 if the new factory equipment is purchased. Prepare a schedule which shows the expected net income after taxes and the earnings per share on common stock under each of the plans that the board of directors is considering. (Do not leave any answer field blank. Enter 0 for amounts. Round earnings per share to 2 decimal places, e.g. 5.25.) Income Before Interest and Taxes : Interest Expense $ Plan #1 Issue Bonds Plan #2 Issue Stock

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The board of directors of Crane Corporation is considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issuance of $5,100,000 , 8 %, 20-year bonds at face value. Plan #2 would require the issuance of 100,000 shares of $5 par value common stock which is selling for $51 per share on the open market. Crane Corporation currently has 100,000 shares of common stock outstanding and the income tax rate is expected to be 30%. Assume that income before interest and income taxes is expected to be $618,000 if the new factory equipment is purchased. Prepare a schedule which shows the expected net income after taxes and the earnings per share on common stock under each of the plans that the board of directors is considering. (Do not leave any answer field blank. Enter 0 for amounts. Round earnings per share to 2 decimal places, e.g. 5.25.) Income Before Interest and Taxes Interest Expense Income Before Taxes Income Taxes Net Income Outstanding Shares # Plan #1 Issue Bonds Plan #2 Issue Stock 777
Transcribed Image Text:The board of directors of Crane Corporation is considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issuance of $5,100,000 , 8 %, 20-year bonds at face value. Plan #2 would require the issuance of 100,000 shares of $5 par value common stock which is selling for $51 per share on the open market. Crane Corporation currently has 100,000 shares of common stock outstanding and the income tax rate is expected to be 30%. Assume that income before interest and income taxes is expected to be $618,000 if the new factory equipment is purchased. Prepare a schedule which shows the expected net income after taxes and the earnings per share on common stock under each of the plans that the board of directors is considering. (Do not leave any answer field blank. Enter 0 for amounts. Round earnings per share to 2 decimal places, e.g. 5.25.) Income Before Interest and Taxes Interest Expense Income Before Taxes Income Taxes Net Income Outstanding Shares # Plan #1 Issue Bonds Plan #2 Issue Stock 777
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