Slotkin Health is considering two alternatives for the financing of some high technology medical equipment. These two alternatives are:
| 1. | Issue 60,000 shares of $10 par value common stock at $50 per share. |
| 2. |
Issue $3,000,000, 8%, 10-year bonds at par. |
It is estimated that the company will earn $900,000 before interest and taxes as a result of acquiring the medical equipment. The company has an estimated tax rate of 40% and has 80,000 shares of common stock outstanding prior to the new financing.
Instructions
Determine the effect on net income and earnings per share for these two methods of financing.
