Waketown Marina needs to raise $2.0 million to expand the company. The company is considering issuing either:
■ $2,000,000 of 6% bonds payable to borrow the money; or
■ 100,000 shares of common stock at $20 per share.

Before any new financing, Waketown expects to earn net income of $500,000, and the company already has 100,000 shares of common stock outstanding. Waketown believes the expansion will increase income before interest and income tax by $400,000. The company’s income tax rate is 30%.

Prepare an analysis to determine which plan is likely to result in the higher earnings per share. Based solely on the earnings-per-share comparison, which financing plan would you recommend for Waketown?