Question: Pudong Transport Ltd. is considering two plans for raising $4,000,000 to expand operations. Plan A is to borrow at 9 percent, and Plan B is

Pudong Transport Ltd. is considering two plans for raising $4,000,000 to expand operations. Plan A is to borrow at 9 percent, and Plan B is to issue 400,000 common shares. Before any new financing, Pudong Transport Ltd. has net income after interest and income tax of $2,000,000 and 400,000 common shares outstanding. Management believes the company can use the new funds to earn income of $840,000 per year before interest and taxes. The income tax rate is 35 percent.

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Analyze Pudong Transport Ltd.'s situation to determine which plan will result in higher earnings per share.

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