Cupcake Factory is purchasing a new warehouse for $35 million. It is trying to decide between the following two alternatives to finance the purchase of the warehouse:

a. Issue $35 million, 7% note.

b. Issue 1 million shares of common stock for $35 per share.

A. Compute earnings per share for alternative a. [issue 7% note].

B. Compute earnings per share for alternative b. [issue stock at $35].

\begin{tabular}{|c|c|c|} \hline & Issue Bonds & Issue Stock \\ \hline \begin{tabular}{l} Operating income \\ Interest expense (note only) \\ Income before tax \\ Income tax expense (35\%) \end{tabular} & $11,000,000 & $11,000,000 \\ \hline Net income & $ & $ \\ \hline \begin{tabular}{l} Number of shares \\ Earnings per share (Net income/\# of shares) \end{tabular} & $4,000,000 & $5,000,000 \\ \hline \end{tabular}