NM Electronics is considering two plans for raising $ 2,000,000 to expand operations. Plan A is to

Question:

NM Electronics is considering two plans for raising $ 2,000,000 to expand operations. Plan A is to issue 7% bonds payable, and plan B is to issue 200,000 shares of common stock. Before any new financing, NM has net income of $ 200,000 and 100,000 shares of common stock outstanding. Management believes the company can use the new funds to earn additional income of $ 400,000 before interest and taxes. The income tax rate is 30%. Analyze the NM Electronics situation to deter-mine which plan will result in higher earnings per share.

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...