Wavetown Marina needs to raise $1 million to expand the company. Wavetown Marina is considering the issuance of either $1,000,000 of 7% bonds payable to borrow the money, or 100,000 shares of common stock at $10 per share.

Before any new financing, Wavetown Marina expects to earn net income of $400,000, and the company already has 100,000 shares of common stock outstanding. Wavetown Marina believes the expansion will increase income before interest and income tax by $100,000. The income tax rate is 30%.

Prepare an analysis to determine which plan is likely to result in the higher earnings per share. Based solely on the earnings-per-share comparison, which financing plan would you recommend for Wavetown Marina?