T&T Marina needs to raise $2 million to expand. T&T’s president is considering two plans:

• Plan A: Issue $2,000,000 of 8 percent bonds payable to borrow the money

• Plan B: Issue 100,000 common shares at $20.00 per share

Before any new financing, T&T expects to earn net income of $600,000, and the company already has 200,000 common shares outstanding. T&T believes the expansion will increase income before interest and income tax by $400,000. The income tax rate is 35 percent.

Prepare an analysis similar to Exhibit 15–9, on page 842, to determine which plan is likely to result in higher earnings per share. Which financing plan would you recommend?