Shaffer Inc. is considering two alternatives to finance its construction of a new $2 million plant.
(a) Issuance of 200,000 shares of common stock at the market price of $10 per share.
(b) Issuance of $2 million, 7% bonds at face value.
Complete the following table, and indicate which alternative ispreferable.

Issue Stock Issue Bond Income before interest and taxes Interest expense from bonds Income before income taxes Income tax expense (30%) Net incomc $700,000 $700,000 Outstanding shares Earnings per share 500,000