MC Electronics is considering two plans for raising ($ 1,000,000) to expand operations. Plan A is to
Question:
MC Electronics is considering two plans for raising \(\$ 1,000,000\) to expand operations. Plan A is to issue \(9 \%\) bonds payable, and plan B is to issue 100,000 shares of common stock. Before any new financing, MC has net income of \(\$ 300,000\) and 100,000 shares of common stock outstanding. Management believes the company can use the new funds to earn additional income of \(\$ 420,000\) before interest and taxes. The income tax rate is \(40 \%\).
Requirement
Analyze MC Electronics' situation to determine which plan will result in higher earnings per share. Use Exhibit 15-4 as a guide.
Exhibit 15-4
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