RL

Electronics is considering two plans for raising

$1,000,000

to expand operations. Plan A is to issue

6%

bonds payable, and plan B is to issue

300,000

shares of common stock. Before any new financing,

RL

Electronics has net income of

$100,000

and

100,000

shares of common stock outstanding. Management believes the company can use the new funds to earn additional income of

$200,000

before interest and taxes. The income tax rate is

30%.

Analyze the

RL

Electronics situation to determine which plan will result in higher earnings per share. (Complete all answer boxes. Enter "0" for any zero balances. Round earnings per share amounts to the nearest cent.)

Begin by completing the analysis below for plan A, then plan B.

	Plan A: Issue $1,000,000
	of 6% Bonds Payable
Net income before new project
Expected income on the new project before
interest and income tax expenses
Less: Interest expense
Project income before income tax
Less: Income tax expense
Project net income
Net income with new project
Earnings per share with new project:
Plan A
Plan B