Shaffer 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, 7% bonds at face value.
Complete the following table, and indicate which alternative ispreferable.

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Issue Stock Issue Bond Income before interest and taxes Interest expense from bonds Income before income taxes Income tax expense (30%) Net incomc $700,000 $700,000 Outstanding shares Earnings per share 500,000