Sunrise Developments, Inc , is considering two financing alternatives for a $9,500,000 retail complex One option is to issue 250,000 shares of common stock at a price of $38 per share The second option is to borrow $9,500,000 at an interest rate of 6 The new complex is expected to yield a before ta...

a After Stock After Bond Base Issuance Issuance Base earnings before ...

Sunrise Developments, Inc., is considering two financing alternatives for a $9,500,000 retail complex. One option is to

Question:

Sunrise Developments, Inc., is considering two financing alternatives for a $9,500,000 retail complex. One option is to issue 250,000 shares of at a price of $38 per share. The second option is to borrow $9,500,000 at an interest rate of 6%. The new complex is expected to yield a before-tax return of 10%. The before-tax earnings before considering either financing alternative is $6,250,000. There are 2,000,000 shares of outstanding prior to considering financing alternatives. The tax rate is 20%.
a. Determine the estimated earnings per share impact from the two financing alternatives.
b. Which alternative has the most favorable impact on earnings per share?

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...