Hillside Medical Goods is embarking on a massive expansion. Assume plans call for opening 20 new stores during the next two years. Each store is scheduled to be 30% larger than the company's existing locations, offering more items of inventory and with more elaborate displays. Management estimates that company operations will provide $1.0 million of the cash needed for expansion. Hillside Medical must raise the remaining $5.75 million from outsiders.

Requirement 1. Evaluate the effect the two financing alternative will have on Hillside's net income and earnings per share two years from now.

Begin by selecting the labels needed to analyze the effect of the alternative on net income and to show earnings per share after the expansion. Next, enter the amounts to show the effect of the borrowing alternative, then enter the amounts to show the effect of the shares of stock alternative.

Requirement 2. Complete the memo to Hillside's management discussing the advantages and disadvantages of borrowing and of issuing common stock to raise the needed cash. Which method of raising funds would you recommend?

To: Management of Hillside Medical Goods

Subject: Advantages and disadvantages of borrowing to raise cash for expansion are as follows