Hello, I don’t know how to do this question: If the board of


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May 24, 2016. Hello, I don’t know how to do this question: If the board of directors’ stated goal is to maximize the common shareholders’ return, which alternative is preferable? If the board’s stated goal is to maximize solvency, which alternative is preferable? Below are the instructions and facts The board of directors of Finley Corporation is considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issue of $4,000,000, 6%, 20-year bonds at face value. Plan #2 would require the issue of 200,000 common shares for $20 per share. Finley Corporation currently has 100,000 common shares issued at a book value of $20 each and retained earnings of $750,000. The income tax rate is expected to be 30%. Assume that income before interest and income taxes is expected to be $800,000 if the new factory equipment is purchased. A8 Prepare a schedule which shows the expected net income after taxes, earnings per share, and return on equity under each of the plans that the board of directors is considering. Plan #1 Plan #2 Issue Bonds Issue Shares Income before interest and Income tax 800000 800000 Interest Expense 240000 Income before income tax EBI 560000 500000 Income tax expense (30%) 16800 15000 Net Income 543200 485000 Issued Shares 100000 300000 Earnings per share 5.43 1.62 Price-Earnings 3.68 12.37 ugugug
posted a question · May 23, 2016 at 10:57pm

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