Penny arcades inc is trying to decide between the following, Ask an Expert

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Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $25 million gaming center

Issue $25 million of 6% bonds at face amount.

B. Issue 1 million shares of common stock for $25 per share.\

Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Leave no cells blank - be certain to enter "0" wherever required. Enter your answers in dollars not in millions. Input all amounts as positive values. Round your "Earnings per Share" to 2 decimal places. Omit the "$" sign in your response.)

	Issue Bonds		Issue Stock
Operating income	$	10,000,000	$	10,000,000
Interest expense (bonds only)

Income before tax
Income tax expense (30%)

Net income	$		$

Number of shares		3,000,000		4,000,000
Earnings per share	$		$

2.	Which alternative results in the highest earnings per share?

	Issue bonds
	Issue stock

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9946246

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