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Rustic Campsites, Incorporated, is trying to decide between the following two alternatives to finance its new $22 million gaming center: a. Issue $22 million, 7% note. b. Issue 1 million shares of common stock for $22 per share with expected annual dividends of $1.54 per share. Required: 1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. 2. Answer the following questions for the current year: (a) By how much are interest payments higher if issuing the note? (b) By how much are dividend payments higher by issuing stock? (c) Which alternative results in higher earnings per share? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answers in dollars, not millions (ie, $5.5 million should be entered as 5,500,000). Round your "Earnings per Share to 2 decimal places) Operating income Interest expense (on note only) income before tax income tax expense (35%) Net income Number of shares Issue Note Issue Stock S 9,700,000 $ 9,700,000 1,078.000 1,078,000 S 0$ 2.700,000 0 3.700.000

Rustic Campsites, Incorporated, is trying to decide between the following two alternatives to finance its new $22 million gaming center: a. Issue $22 million, 7% note. b. Issue 1 million shares of common stock for $22 per share with expected annual dividends of $1.54 per share. Required: 1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. 2. Answer the following questions for the current year: (a) By how much are interest payments higher if issuing the note? (b) By how much are dividend payments higher by issuing stock? (c) Which alternative results in higher earnings per share? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answers in dollars, not millions (ie, $5.5 million should be entered as 5,500,000). Round your "Earnings per Share to 2 decimal places) Operating income Interest expense (on note only) income before tax income tax expense (35%) Net income Number of shares Issue Note Issue Stock S 9,700,000 $ 9,700,000 1,078.000 1,078,000 S 0$ 2.700,000 0 3.700.000

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter14: Capital Structure Management In Practice
Section: Chapter Questions
Problem 20P
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= 0 ances Rustic Campsites, Incorporated, is trying to decide between the following two alternatives to finance its new $22 million gaming center: a. Issue $22 million, 7% note. b. Issue 1 million shares of common stock for $22 per share with expected annual dividends of $1.54 per share. Required: 1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. 2. Answer the following questions for the current year: (a) By how much are interest payments higher if issuing the note? (b) By how much are dividend payments higher by issuing stock? (c) Which alternative results in higher earnings per share? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answers in dollars, not millions (ie, $5.5 million should be entered as 5,500,000). Round your "Earnings per Share to 2 decimal places) Operating income Interest expense (on note only) income before tax income tax expense (35%) Net income Number of shares issue Note S 9,700,000 1,078.000 $ Issue Stock $. 9,700,000 1,078,000 OS 2.700,000 0 3,700,000
Transcribed Image Text:= 0 ances Rustic Campsites, Incorporated, is trying to decide between the following two alternatives to finance its new $22 million gaming center: a. Issue $22 million, 7% note. b. Issue 1 million shares of common stock for $22 per share with expected annual dividends of $1.54 per share. Required: 1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. 2. Answer the following questions for the current year: (a) By how much are interest payments higher if issuing the note? (b) By how much are dividend payments higher by issuing stock? (c) Which alternative results in higher earnings per share? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answers in dollars, not millions (ie, $5.5 million should be entered as 5,500,000). Round your "Earnings per Share to 2 decimal places) Operating income Interest expense (on note only) income before tax income tax expense (35%) Net income Number of shares issue Note S 9,700,000 1,078.000 $ Issue Stock $. 9,700,000 1,078,000 OS 2.700,000 0 3,700,000
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