Q4. Diteck Corporation is considering two plans for raising $3,000,000 to expand its operations into the west. The first plan involves the sale of 6%, 10-year bonds that could be issued at face value, and the second plan involves the sale of 50,000 common shares at $60 per share. Either alternative would raise $3,000,000. Prior to any new financing, Diteck Corporation has net income of $850,000 and 200,000 common shares outstanding. Management believes the expansion will generate additional income of $360,000 before interest and taxes. The income tax rate is 40%.

a) Calculate the earnings per share assuming:

1) the bonds are issued

2) the common shares are issued

b) Which plan should the corporation choose in order to expand its operations?

Diteck Corporation
	PLAN A BORROW $3,000,000 AT 6%	PLAN B ISSUE $3,000,000 of COMMON SHARES
Net income after interest and income tax, before expansion
Project income before interest and income tax
Interest expense
Project income before income tax
Income tax on new project
Project net income
Total company net income
Earnings per share including expansion
Plan A
Plan B