Question

ZedCon Inc. intends to raise $10,000,000 for the purpose of expanding operations internationally. Two options are available:
• Plan 1: Issue $10,000,000 of 5% bonds payable due in 2024, or
• Plan 2: Issue 100,000 common shares at $100 per share.
The expansion is expected to generate additional annual income before interest and tax of $800,000. ZedCon’s tax rate is 35%. The assumed adjusted trial balance at December 31, 2015, one year after the expansion under each of Plan 1 and Plan 2, is shown below:



Required
Preparation Component:
1. Prepare a single-step income statement for 2015 (showing salaries expense, depreciation expense, cost of goods sold, interest expense and other expenses) and a classified balance sheet at December 31, 2015, assuming:
a. Plan 1, and
Then b. Plan 2.
Analysis Component: Which financing plan should ZedCon Inc. choose assuming its goal is to:
a. Maximize earnings per share, or
b. Maximize net income.
Explain your answers showing any relevant calculations (rounded to the nearest wholecent).


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  • CreatedJanuary 08, 2015
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