SG Electronics is considering two plans for raising \($3,000,000\) to expand operations. Plan A is to issue 6% bonds payable, and plan B is to issue 100,000 shares of common stock. Before any new financing, SG has net income of \($300,000\) and 200,000 shares of common stock outstanding. Management believes the company can use the new funds to earn additional income of \($500,000\) before interest and taxes. The income tax rate is 40%.
Requirement
1. Analyze SG Electronics’ situation to determine which plan will result in higher earnings per share.