Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $30 million gaming center:

.

Issue $30 million of 5% bonds at face amount.

Issue 1 million shares of common stock for $30 per share.

Required:

1.	Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for each alternative.

Operating income

$10,500,000

$10,500,000

interest expense (bonds only)

income before tax

Income tax expense (40%)

Net income

Number of shares

3,500,000

4,500,000