156A corporation plans to invest $1 million in oil exploration. The corporation is considering two plans to raise the money. Under Plan #1, bonds with a contract rate of interest of 6% would be issued. Under Plan #2, 50,000 additional shares of common stock would be issued at $20 per share. The corporation currently has 300,000 shares of stock outstanding, and it expects to earn $700,000 per year before bond interest and income taxes. The net income and return on investment for both plans is shown below: Earnings before bond interest and taxes $700,000 (60,000) $640,000 {224,000} $416,000 $700,000 Bond interest expense Income before taxes $700,000 (245,000) $455,000 Income taxes Net income $8,000,000 5.2% $9,000,000 5.06% Return on Equity Comment on the relative effects of each alternative, including when one form of nancing is preferred to another