Conrad Corporation plans to raise $8 million to pay off its existing short-term bank loan of $2.4 million and to increase total assets by $5,600,000. The bank loan bears an interest rate of 12 percent. The company's president owns 55 % of the 4,000,000 shares of common stock and wishes to maintain control of the company. The company's tax rate is 35%. Balance sheet information is shown below. The company is considering two alternatives to raise the $8 million: (1) sell common stock at $20 per share, or (2) Sell bonds at a 12% coupon, each $1,000 bond carrying 25 warrants to buy common stock at $20 per share.

Current Balance Sheet
		Current Liabilities	$3,000,000
		Common Stock, Par $1	2,000,000
		Retained earnings	1,400,000
Total Assets	$6,400,000	Total claims	$6,400,000
Alternative 1: Common stock	$20	Tax rate	35%
# new shares	400,000	New financing	$8,000,000
Par value per share	$1	Existing Loan	$2,400,000
		Interest rate	12%
Alternative 2: Debentures	12%	Interest amount - old	$288,000
Exercise price per warrant	$30	Interest amount - new	$960,000
# bonds to raise 4M	8,000
# new shares	200,000	President owns	55.0%
warrants per bond	25	Shares outstanding	4,000,000
New money raised	6,000,000
Addition to par	200,000
Additional paid-in capital	5,800,000

• Show the new balance sheet under both alternatives. For Alternatives 2, show the balance sheet after exercise of the warrants
• Calculate the president's ownership position for both alternatives. He doesn't buy any of the additional shares.
• Calculate earnings per share for both alternatives, assuming that EBIT is 15% of total assets.
• Calculate the debt ratio under both alternatives. Which alternative do you recommend and why? e. Which alternative do you recommend and why?