As part of CM2's plan to obtain financing for its expansion at the end of 2013, you have prepared an analysis of the effects on the financial statements of issuing bonds; and/or going public with a large stock issue.

Conner and Martin now have another possible alternative that would basically permit them to keep control of the company, at least in the short run. To finance the expansion, they are considering the issuance of stock to the existing stockholder group and the issuance of convertible securities to the general public. They know that if they eventually do go public, the investment community will use metrics like EPS to assess the price to pay for the stock. They are quite concerned about how the company's EPS numbers would compare to those of their competitors under this new proposal.

Here are the transactions that are under consideration for 2013:

1.June1Issue 6%, $1,000 bonds at a total price of $5 million. Each $1,000 certificate is convertible into 100 shares of common stock. The par value and market value of the convertible bonds are the same.

2.July 15 Issue 300,000 shares of common stock at $3 per share.

3.August 1 Issue 20,000 shares of 5% cumulative preferred stock ($150 par), with each share convertible into 19 shares of common stock. Dividends are paid on the preferred stock on June 30 and December 31 of each year. The stock would be issued at par.

4.October 1 Issue 200,000 shares of common stock for $3 per share.

5.December 1 Issue 100,000 shares of common stock for $3 per share.