Exercise 11-14

Atlantic Airlines is considering these two alternatives for financing the purchase of a fleet of airplanes.

1.		Issue 60,800 shares of common stock at $50 per share. (Cash dividends have not been paid nor is the payment of any contemplated.)
2.		Issue 14%, 15-year bonds at face value for $3,040,000.

It is estimated that the company will earn $826,500 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 93,400 shares of common stock outstanding prior to the new financing. Determine the effect on net income and earnings per share for issuing stock and issuing bonds. Assume the new shares or new bonds will be outstanding for the entire year. (Round earnings per share to 2 decimal places, e.g. $2.66.)

I am not sure if my Labels are correct so feel free to make any changes.

Exercise 11-14 Atlantic Airlines is considering these two alternatives for financing the purchase of a fleet of airplanes. 1. Issue 60,800 shares of common stock at $50 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2. Issue 14%, 15-year bonds at face value for $3,040,000. It is estimated that the company will earn $826,500 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 93,400 shares of common stock outstanding prior to the new financing. Determine the effect on net income and earnings per share for issuing stock and issuing bonds. Assume the new shares or new bonds will be outstanding for the entire year. (Round earnings per share to 2 decimal places,e.g. $2.66) an One 1ssue an Iwo 1ssue BondS Income Before Interest and Taxes Income Tax Expense Retained Earnings, January 1 Interest Total Expenses Outstanding Shares Retained Earnings, December 31