Question: Nation Financial Services is considering two plans for raising $600,000 to expand operations. Plan A is to borrow at 5%, and plan B is to

Nation Financial Services is considering two plans for raising $600,000 to expand operations. Plan A is to borrow at 5%, and plan B is to issue 100,000 shares of common stock at $6.00 per share. Before any new financing, Green Nation Financial Services has net income of $400,000 and 100,000 shares of common stock outstanding. Assume you own most of Green Nation Financial Services' existing stock. Management believes the company can use the new funds to earn additional income of $550,000 before interest and taxes. Green Nation Financial Services' income tax rate is 40%..

Requirements

1. Analyze Green Nation Financial Services' situation to determine which plan will result in higher earnings per share.

2. Which plan allows you to retain control of the company? Which plan creates more financial risk for the company? Which plan do you prefer? Why? Present your conclusion in a memo to Green Nation Financial Services' board of directors.

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Req 1 PLAN A BORROW 600000 AT 5 PLAN B ISSUE 600000 OF COMMON STOCK Net income before expansion 4000... View full answer

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