Penny Arcades, Incorporated, is trying to decide between the following two alternatives to finance its new $35 million gaming center. a. Issue $35 million, 7% note b. Issue 1 million shares of common stock for $35 per share with expected annual dividends of $2.45 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 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? (Enter your answers in dollars, not millions (L.e., $5.5 million should be entered as 5,500,000).) a. By how much are interesit 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? < Required 1 Required 23 Show less A

Penny Arcades, Incorporated, is trying to decide between the following two alternatives to finance its new $35 million gaming center. a. Issue $35 million, 7% note b. Issue 1 million shares of common stock for $35 per share with expected annual dividends of $2.45 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 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? (Enter your answers in dollars, not millions (L.e., $5.5 million should be entered as 5,500,000).) a. By how much are interesit 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? < Required 1 Required 23 Show less A

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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[The following information applies to the questions displayed below.] Penny Arcades, Inc., Is trying to decide between the following two alternatives to finance its new $35 million gaming center: a. Issue $35 million, 7% note. b. Issue 1 million shares of common stock for $35 per share. Requlred: 1. 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 dollers, not mllllons. (I.e., $5.5 millon should be entered as 5,500,000). Round your "Earnings per Share" to 2 decimal places.) Issue Note Issue Stock Operating income Interest expense (note only) 11,000,000 11,000,000 Income before tax Income tax expense (35%) Net income Number of shares 4,000,000 5.000,000 Earnings per share (Net income / # of shares)
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