E91 Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $35 million gaming center:

a.	Issue $35 million of 7% bonds at face amount.
b.	Issue 1 million shares of common stock for $35 per share. Issue Bonds Issue Stock Operating income $11,000,000 $11,000,000 Interest expense (bonds only) Income before tax Income tax expense (35%) __________ __________ Net income $ $ Number of shares 4,000,000 5,000,000 Earnings per share (Net income/# of shares) $ $

Required:

1.	Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for each alternative.
2.	Which alternative results in the highest earnings per share?