Early in the 2020, Baladna Co. prepared an expansion plan. The plan requires an increase in in both property, plant and equipment and inventory by $190,000,000 and $10,000,000 respectively. The following three alternative financing plans have been suggested by the firms investment bankers:

Plan I: issue preferred stock at par.

Plan II: issue common stock at $10 per share.

Plan III: issue a 16% long-term bonds, due in 20 years, at par ($1,000).

1. Changes resulting from the three alternative plans give the following earnings per share (EPS): Plan A0.73, Plan B0.69, and Plan C0.73. Based on this information, what are the main advantages and disadvantages of each plan?

Income Statement

For the Year Ended December 31, 2019

(in thousands except earnings per share)

Sales $936,000

Cost of sales 671,000

Gross profit $265,000

Operating expenses:

Selling $62,000

General 41,000 103,000

Operating income $162,000

Other items:

Interest expense 20,000

Earnings before provision for income tax $142,000

Provision for income tax 56,800

Net income $ 85,200

Earnings per share $ 0.83