BE11-7 Mareska Inc. is considering two alternatives to finance its construction of a new $2 million plant.
(a) Issuance of 200,000 shares of common stock at the market price of $10 per share.
(b) Issuance of $2 million, 8% bonds at par
Complete the following table, and indicate which alternative is preferable.
Issue Stock Issue Bond
Income before interest and taxes $700,000 $700,000
Interest expense from bonds
Income before income taxes $ $
Income tax expense (30%)
Net income $ $
Outstanding shares 500,000
Earnings per share
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