Shaffer Inc. is considering two alternatives to finance its construction of a new

$2 million plant.

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

(b) Issuance of $2 million, 7% bonds at face value.

Complete the following table, and indicate which alternative is preferable.

Issue Stock

$700,000 Issue Bond Income before interest and taxes $700,000 Interest expense from bonds Income before income taxes Income tax expense (30%)

Net income $ $

Outstanding shares 500,000 Earnings per share