Jn electronics is considering two plans for raising $ 1 comma 000 comma 000 to expand operations. plan a is to issue 9% bonds payable, and plan b is to issue 700 comma 000 shares of common stock. before any new financing, jn electronics has net income of $ 150 comma 000 and 100 comma 000 shares of common stock outstanding. management believes the company can use the new funds to earn additional income of $ 300 comma 000 before interest and taxes. the income tax rate is 40%. analyze the jn electronics situation to determine which plan will result in higher earnings per share.

It is a better deal to finance through bonds payable, as the projected earnings per share is 2.76 while, financing through equity the EPS is 0.4125

Explanation:

current income: 150,000

additional income 300,000

if finance through equity:

300,000 - 40% tax rate = 180,000

scenario income 150,000 + 180,000 = 330,000

EPS: 330,000 / (100,000+700,000) = 330,000/800,000 = 0.4125

if finance through debt:

1,000,000 x 9% = 90,000 interest expense

(300,000 - 90,000 )  - 40% taxrate = 126,000 after interet and taxes

scenario income 150,000 + 126,000 = 276,000

EPS 276,000/ 100,000 = 2.76

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a manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. at the end of december, the company wishes to forecast sales for january. the estimate of trend through november has been 200 additional boards sold per month. average sales have been around 1000 units per month. the demand for december was 1100 units. the company uses α = 0.20 and β = 0.10. make a forecast including trend for the month of january.