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?

BALADNA CO.

Balance Sheet as of December 31, 2019 (in thousands)

Assets

Current assets:

Cash $ 50,000

Accounts receivable 60,000

Inventory 106,000

Total current assets $216,000

Property, plant, and equipment $504,000

Less: Accumulated depreciation 140,000 364,000

Patents and other intangible assets 20,000

Total assets $600,000

Liabilities and Stockholders Equity

Current liabilities:

Accounts payable $ 46,000

Taxes payable 15,000

Other current liabilities 32,000

Total current liabilities $ 93,000

Long-term debt 100,000

Stockholders equity:

Preferred stock ($100 par, 10% cumulative, 500,000 shares

authorized and issued) 50,000

Common stock ($1 par, 200,000,000 shares authorized,

100,000,000 issued) 100,000

Premium on common stock 120,000

Retained earnings 137,000

Total liabilities and stockholders equity $600,000