Kingston Corporation has total assets of \(\$ 5,200,000\) and has been earning an average of \(\$ 800,000\) before income taxes the past several years. The firm is planning to expand plant facilities to manufacture a new product and needs an additional \(\$ 2,000,000\) in funds, on which it expects to earn 18 percent before income tax. The income tax rate is expected to be 20 percent for the next several years. The firm has no long-term debt outstanding and presently has 75,000 shares of common stock outstanding. The firm is considering three alternatives:

1. Obtain the \(\$ 2,000,000\) by issuing 25,000 shares of common stock at \(\$ 80\) per share.

2. Obtain the \(\$ 2,000,000\) by issuing \(\$ 1,000,000\) of ten percent, 20 -year bonds at face value and 12,500 shares of common stock at \(\$ 80\) per share.

3. Obtain the \(\$ 2,000,000\) by issuing \(\$ 2,000,000\) of ten percent, 20 -year bonds at face value.

Required 

As a shareholder of Kingston Corporation, which of the three alternatives would you prefer if your main concern is enhancing the firm's earnings per share? (Hint: Divide net income by the number of outstanding common shares to determine the company's earnings per share.)