After deciding to incorporate each of the three investors

recei
After deciding to incorporate, each of the three investors receives 20,000 shares of$2 par
common stock on June 12, 2009, in exchange for their co-owned building ($200,000 market
value) and $100,000 total cash they contributed to the business. The next decision that Mindy,
Oscar, and Lori need to make is how to obtain financing for renovation and equipment. They
understand the difference between equity securities and debt securities, but do not understand
the tax, net income, and earnings per share consequences of equity versus debt financing on
the future of their business.Instructions(b) Prepare notes for a discussion with the three
entrepreneurs in which you will compare the consequences of using equity versus debt
financing. As part of your notes, show the differences in interest and tax expense assuming
$1,400,000 is financed with common stock, and then alternatively with debt. Assume that when
common stock is used, 140,000 shares will be issued. When debt is used, assume the interest
rate on debt is 9%, the tax rate is 32%, and income before interest and taxes is $300,000. (You
may want to use an electronic spreadsheet.)View Solution:
After deciding to incorporate each of the three investors recei
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