Harbridge Electronix, a producer of electronic components and pre-assemblies, was trying to decide how best to raise $300 million to finance the completion of a major reorganization and expansion program.

a) with the issuance of 15 million common shares at a price of $20 per share

b) with the issuance of par bonds with a face value of $300 million and an interest rate of 12%. The bonds will be issued for a term of 20 years and would carry an annual sinking fund of $15 million.

The management team believed the expansion program would increase Harbridge's Earnings Before Interest and Taxes to $310 million.

The company pays $0.5 per share in dividends. The income tax rate is 40%

Funding data is shown below:

	Before New Financing	Share Financing	Bond Financing
Outstanding interest-bearing debt	160	160	460
Interest Expenses	16	16	52
Principal Payments	40	40	55
Own Funds (Equity)	820	1120	820
Ordinary Shares Outstanding	50	65	50
Dividends paid at $0.50 per share	25	32,5	25

What is your recommendation for company financing?