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Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $29 million gaming center: a. Issue $29 million of

Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $29 million gaming center:

a.

Issue $29 million of 7% bonds at face amount.

b.

Issue 1 million shares of common stock for $29 per share.

ISSUE BONDS ISSUE STOCK Operating Income $10,400,000 $10,400,000

Interest Expense(bonds only) Income before tax income tax expense (35%) net income number of shares $3,400,000 $4,400,000 earning per share

2) Which alternative results in the highest earnings per share?

Issue bonds or

Issue stock???

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