Bagan corp a profitable growth company with 200,000 shares of common stock outstanding is in need of approxamatly 404 million in new funds to finance required exapansion. currently there are no other equities outstanding. Mnagment has three options:

a. Sell $40 million of 12?per cent bonds at facem, value.

b. Sell shares of 10% preferred stock: 400,000 shares at $100 each (dividend $10 per share).

c. Sell another 200,000 shares of common stock at $200 each.

Operating income (before interest and income taxes) on completion of the expansion is expected to average $12 million per year; the income tax rate is 50%.

Required: 1. Complete the schedule below and calculate the earnings per share of common stock.

Income before interest and income taxes $12,000,000 $12,000,000 $12,000,000 Less: Interest expense

12% bonds Preferred stock Common stock

Income before taxes Less: Income taxes at 50%         

   Net income Less: Preferred dividends          

  Net income available to common stockholders    

  Number of common shares outstanding

Earnings per share of common stock      

2. Which financing option is most advantageous to the common  stockholders? Why?