Moby Inc. is considering two alternatives to finance its construction of a new $2 million plant.

Instructions

a. Issuance of 200,000 shares of common stock at the market price of $10 per share.
b. Issuance of $2 million, 8% bonds at face value. Complete the following table, and indicate which alternative is preferable. (Round EPS calculation to the nearest cent.)

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Income before interest and taxes Interest expense from bonds Income before income taxes Income tax expense (20%) Net income Outstanding shares Earnings per share Issue Stock $700,000 | || Issue Bond $700,000 $ 500,000