JET2 TASK 3
A1.
The highest earnings per common stock share option is the 50% Preferred & 50% Common Stock and it will maximize the shareholder holders return.
12% Bonds 50% Preferred & 50% CS 20% 12% Bonds & CS 40% 12% Bonds & CS 60% 12% Bonds & CS
Year 9 0.002 0.027 0.027 0.023 0.017
Year 10 0.009 0.032 0.032 0.028 0.023
Year 11 0.019 0.039 0.038 0.035 0.031
Year 12 0.031 0.048 0.046 0.043 0.04
Year 13 0.042 0.057 0.054 0.052 0.049
Total 0.103 0.203 0.197 0.181 0.16
A1a. During the 12% bonds review the earnings per share common stock out totaled .103. The total was not enough to maximize the shareholders return. It was observed that the interest on the bonds would put them at $72,000. The interest on bonds was very high and could have contributed to the lower total figure. The common stock shares outstanding were at $975,000; which was a very low number. Compared to all the totals the 12% option had the lowest shares issued.
During the 20% bonds review they totaled the earnings per common stock share at .197. This stock option was the second highest to the chosen 50% stock option. It looks like the 20% bond option was lower due to using $120,000 in bonds and $480,000 in common stock.
The 40% bond option had earnings per common stock share of .181. The ending total wasn’t too bad but it wasn’t enough to maximize the shareholders return. The company acquiring $240,00 in bonds and $360,00 in common stock played a role why the figures went good enough to increase shareholders return.
The 60% bond option had earnings per common stock share at .160. The $43,200 interest on bonds could have affected the earnings total. The income before tax and the tax income was a contributing factor to lower figures and results in the net income category.
A2. Competition Bikes needs to analyze their capital budgeting. Businesses should acquire investments that are going to bring in more revenue but they have to make sure for the long term the investment
The highest earnings per common stock share option is the 50% Preferred & 50% Common Stock and it will maximize the shareholder holders return.
12% Bonds 50% Preferred & 50% CS 20% 12% Bonds & CS 40% 12% Bonds & CS 60% 12% Bonds & CS
Year 9 0.002 0.027 0.027 0.023 0.017
Year 10 0.009 0.032 0.032 0.028 0.023
Year 11 0.019 0.039 0.038 0.035 0.031
Year 12 0.031 0.048 0.046 0.043 0.04
Year 13 0.042 0.057 0.054 0.052 0.049
Total 0.103 0.203 0.197 0.181 0.16
A1a. During the 12% bonds review the earnings per share common stock out totaled .103. The total was not enough to maximize the shareholders return. It was observed that the interest on the bonds would put them at $72,000. The interest on bonds was very high and could have contributed to the lower total figure. The common stock shares outstanding were at $975,000; which was a very low number. Compared to all the totals the 12% option had the lowest shares issued.
During the 20% bonds review they totaled the earnings per common stock share at .197. This stock option was the second highest to the chosen 50% stock option. It looks like the 20% bond option was lower due to using $120,000 in bonds and $480,000 in common stock.
The 40% bond option had earnings per common stock share of .181. The ending total wasn’t too bad but it wasn’t enough to maximize the shareholders return. The company acquiring $240,00 in bonds and $360,00 in common stock played a role why the figures went good enough to increase shareholders return.
The 60% bond option had earnings per common stock share at .160. The $43,200 interest on bonds could have affected the earnings total. The income before tax and the tax income was a contributing factor to lower figures and results in the net income category.
A2. Competition Bikes needs to analyze their capital budgeting. Businesses should acquire investments that are going to bring in more revenue but they have to make sure for the long term the investment