Speegleville Marina needs to raise $0.8 million to expand the company. Speegleville Marina is considering the issuance of either - $800,000 of 7% bonds payable, or • 100,000 common shares at $8 per share. (Click the icon to view additional information.) Prepare an analysis to determine which plan is likely to result in higher earnings per share. Based solely on the earnings-per-share comparison, which financing plan would you recommend for Speegleville Marina? Start by preparing the analysis to determine which plan is likely to result in higher earnings per share (EPS). (For amounts with a $0 balance, make sure to enter "0" in the appropriate column. Round earnings per share to the nearest cent.) Net income before expansion Expected project income before interest and income tax Less: Interest expense Expected project income before income tax Less: Income tax expense Expected project net income Total company net income Earnings per share after expansion Which financing plan would you recommend based solely on EPS? Plan 1 Issue $800,000 of 7% Bonds Payable 200000 200000 200000 60000 200000 340000 Plan 2 Issue $800,000 of Common Shares 200000 56000 144000 43200 200000 200000 300800 3.008

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Speegleville Marina needs to raise $0.8 million to expand the company. Speegleville Marina is considering the issuance of either
• $800,000 of 7% bonds payable, or
100,000 common shares at $8 per share.
(Click the icon to view additional information.)
Prepare an analysis to determine which plan is likely to result in higher earnings per share. Based solely on the earnings-per-share comparison, which
financing plan would you recommend for Speegleville Marina?
Start by preparing the analysis to determine which plan is likely to result in higher earnings per share (EPS). (For amounts with a $0 balance, make
sure to enter "0" in the appropriate column. Round earnings per share to the nearest cent.)
Net income before expansion
Expected project income before interest and income tax
Less: Interest expense
Expected project income before income tax
Less: Income tax expense
Expected project net income
Total company net income
Earnings per share after expansion
Which financing plan would you recommend based solely on EPS?
Additional info
Plan 1
Issue $800,000
of 7% Bonds Payable
200000
200000
0
200000
60000
Before any new financing, Speegleville Marina expects to earn net income of
$200,000, and the company already has 100,000 shares of common shares
outstanding. Speegleville Marina believes the expansion will increase income
before interest and income tax by $200,000. The income tax rate is 30%.
200000
340000
1.7
Plan 2
Issue $800,000
of Common Shares
200000
56000
144000
43200
200000
200000
300800
3.008
Transcribed Image Text:Speegleville Marina needs to raise $0.8 million to expand the company. Speegleville Marina is considering the issuance of either • $800,000 of 7% bonds payable, or 100,000 common shares at $8 per share. (Click the icon to view additional information.) Prepare an analysis to determine which plan is likely to result in higher earnings per share. Based solely on the earnings-per-share comparison, which financing plan would you recommend for Speegleville Marina? Start by preparing the analysis to determine which plan is likely to result in higher earnings per share (EPS). (For amounts with a $0 balance, make sure to enter "0" in the appropriate column. Round earnings per share to the nearest cent.) Net income before expansion Expected project income before interest and income tax Less: Interest expense Expected project income before income tax Less: Income tax expense Expected project net income Total company net income Earnings per share after expansion Which financing plan would you recommend based solely on EPS? Additional info Plan 1 Issue $800,000 of 7% Bonds Payable 200000 200000 0 200000 60000 Before any new financing, Speegleville Marina expects to earn net income of $200,000, and the company already has 100,000 shares of common shares outstanding. Speegleville Marina believes the expansion will increase income before interest and income tax by $200,000. The income tax rate is 30%. 200000 340000 1.7 Plan 2 Issue $800,000 of Common Shares 200000 56000 144000 43200 200000 200000 300800 3.008
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