Fugate Inc. is considering these two alternatives to finance its construction of a new $2 million plant:

1 Issuance of 200,000 shares of common stock at the market price of $10 per share.

2 Issuance of $2 million, 6% bonds at face value.

Complete the table and indicate which alternative is preferable.

Issue Stock Issue Bond Income before interest and taxes $1,500,000 $1,500,000 Interest expense from bonds Income before income taxes Income tax expense (30%)

Net income $ $

Outstanding shares 700,000 Earnings per share $ $

AppendixLO1