The Board of Directors of Del Prado Manufacturing, Inc. is considering two plans for financing the purchase of new plant equipment.

Plan #1 would require the issuance of $1,000,000, 7%, 10-year bonds at face value.

Plan #2 would require the issuance of 100,000 shares of $1 par value common stock that is selling for $10 per share on the open market.

Del Prado currently has 100,000 shares of common stock outstanding and the income tax rate is expected to be 25%. Assume that income before interest and income taxes is expected to be $250,000 if the new factory equipment is purchased.

Instructions

Complete the following schedule that shows the expected net income after taxes and the earnings per share on common stock under each of the plans that the board of directors is considering.

	Plan # 1 Issue Bonds	Plan #2 Issue Stock
Income before interest and taxes	$250,000	$250,000
Interest expense
Income before taxes
Income taxes (25%)
Net income
Outstanding shares
Earnings per share