E14-20 Analyzing alternative plans to raise money

SB Electronics is considering two plans for raising $4,000,000 to expand operations. Plan A is to issue 9% bonds payable, and plan B is to issue 500,000 shares of common stock. Before any new financing, SB Electronics has net income of $350,000 and 300,000 shares of common stock outstanding. Management believes the company can use the new funds to earn additional income of $700,000 before interest and taxes. The income tax rate is 30%.

Analyze the SB Electronics situation to determine which plan will result in higher earnings per share. Use Exhibit 14-6 as a guide.

Format the spreadsheet to resemble Exhibit 14-6 on page 754 of your text.

Remember: The object of this assessment is to use Excel. Let Excel do the math for you, or it may result in a loss of points.