First Bank Financial Services is considering two plans for raising $800,000 to expand operations Plan A is to borrow at 10 , and plan B is to issue 200,000 shares of common stock at $4 00 per share Before any new financing, First Bank Financial Services has net income of $600,000 and 200,000 shares...

Req 1 PLAN A BORROW 800000 AT 10 PLAN B ISSUE 800000 OF COMMON STOCK Net income before expansion 600 ...

First Bank Financial Services is considering two plans for raising $800,000 to expand operations. Plan A is

Question:

First Bank Financial Services is considering two plans for raising $800,000 to expand operations. Plan A is to borrow at 10%, and plan B is to issue 200,000 shares of at $4.00 per share. Before any new financing, First Bank Financial Services has net income of $600,000 and 200,000 shares of outstanding. Assume you own most of First Bank Financial Services existing stock. Management believes the company can use the new funds to earn additional income of $800,000 before interest and taxes. First Bank Financial Services income tax rate is 25%.

Requirements
1. Analyze First Bank Financial Services situation to determine which plan will result in higher earnings per share.
2. Which plan results in the higher earnings per share? Which plan allows you to retain control of the company? Which plan creates more financial risk for the company? Which plan do you prefer? Why? Present your conclusion in a memo to First Bank Financial Services board of directors.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...