The McGovern Bakery Chain manufactures French breads and pastries and is

considering expansion into the West Coast area. Such a move would necessitate a capital

expenditure of $200 million. McGovern is considering raising this money through one of two

plans:(1) sell 20 million new shares of stock at $10 each of(2) sell 10 million new shares of stock

at $10 each and sell $100 million of 13.7% coupon bonds. McGovern currently has outstanding

100 million common shares and $500 million face value of 12% coupon bonds. McGoverns

marginaltax rate is25%