The Excellent Computer Company has grown rapidly during the past 5 years. Recently, its commercial bank urged the company to consider increasing its permanent financing. Its bank loan under a line of credit has risen to $15 million, carrying a 10% interest rate, and Excellent has been 40 to 60 days late in paying trade creditors.

Discussion with an investment banker have resulted in the decision to raise $25 million at this time. Investment bankers have assured Excellent that the following two alternatives are feasible (flotation costs will be ignored): Common stock may be sold at $10 per share, or bonds with a 10% coupon; each $1,000 bond will have 80 warrants, each warrant allows the holder to buy 1 share of common stock at $12.50.

Keith Tam, the CEO, owns 72% of Excellent's common stock and wants to maintain controlof the company; 5 million shares are outstanding. The following are summaries of Excellent'slatest financial statements (in thousand dollars):