XYZ Inc. is considering two alternatives to finance its construction of a new $5 million plant. Currently, it has total number of outstanding shares is 700,000.

Option 1:		Issuance of 500,000 shares of common stock at the market price of $10 per share.
Option 2:		Issuance of $5 million, 5% bonds at par.

Operating revenues and operating expenses of ABC were $10,000,000 and $9,000,000, respectively. The income tax rate is 21%.

a) Show the calculation of earnings per share for option 1 and option 2 if operating revenues and operating expenses of ABC were $10,000,000 and $9,000,000, respectively. Find out the option that is better for the shareholders and explain why.

b) Show the calculation of earnings per share for option 1 and option 2 if operating revenues and operating expenses of ABC were $10,000,000 and $10,000,000, respectively (Note that no income tax for zero income). Find out the option that is better for the shareholders and explain why.