You are the CEO of Beer Inc. Your annual bonus is based on Return on Equity. Your company currently has 700,000 outstanding shares, and is considering the following two mutually exclusive alternatives to finance its construction of a new $2 million plant:

A. Issuance of 200,000 shares of common stock at the market price of $10 per share.

B. Issuance of $2 million, 6% bonds at face value.

Tasks:

1. Complete the table and demonstrate your computations in the table, and
2. Explain your rationale (in fewer than 50 words) on which alternative is preferable to you as the CEO.

	A Issue Stock	B Issue Bond
Income before interest and taxes	$1,500,000	$1,500,000
Interest expense from bonds	N/A
Income before income taxes
Income tax expense (30%)
Net income
Outstanding shares		700,000
Earnings per share