Fones Enterprises must raise additional funds. The treasurer of Fones Enterprises, Scott Michaels, has met with its investment bankers, Wilcox & Pressler, to discuss financing alternatives. Wilcox

& Presler suggested to Mr. Michaels that the firm consider selling either additional common stock or debt (bonds) to finance its capital needs.

Based on this, Mr. Michael’s staff constructed pro forma income statements to determine for each financing alternative the impact on earnings per share for a reasonable range of sales. The staff's projections of earnings per share are summarized below: jjk45

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Sales (in millions of dollars) EARNINGS PER SHARE IF FINANCED BY ADDITIONAL: Common stock Debt $ 8 $1.70 $ 80 222288 10 1.80 1.10 15 2.20 1.90 20 2.801 2.50 25 2.95 3.90 30 3.10 4.75 35 3.50 6.00 Mr. Michaels asked the marketing staff to provide him with estimates of the probability of realizing each level of sales that his staff used to compute earnings per share. The marketing staff's prob- ability estimates are as follows: Sales (in millions of dollars) $ 8 $10 $15 $20 $25 $30 $35 Probability .05 .10 20 .30 20 .10 05 Required: Evaluate the two financing alternatives available to Fones Enterprises.