Business is going well for Park N Fly, the company that operates remote parking lots near major

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Business is going well for Park N Fly, the company that operates remote parking lots near major airports. The board of directors of this family-owned company believes that Park N Fly could earn an additional $1.5 million income before interest and taxes by expanding into new markets. However, the $5 million that the business needs for growth cannot be raised within the family. The directors, who strongly wish to retain family control of the company, must consider issuing securities to outsiders. The directors are considering three financing plans. Plan A is to borrow at 6%. Plan B is to issue 100,000 shares of common stock. Plan C is to issue 100,000 shares of nonvoting, $3.75 preferred stock ($3.75 is the annual dividend paid on each share of preferred stock). Park N Fly presently has net income of $3.5 million and 1 million shares of common stock outstanding. The company’s income tax rate is 35%.

Requirements
1. Prepare an analysis to determine which plan will result in the highest earnings per share of common stock.
2. Recommend a plan to the board of directors. Give your reasons.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Financial accounting

ISBN: 978-0136108863

8th Edition

Authors: Walter T. Harrison, Charles T. Horngren, William Bill Thomas

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