Financial Services is considering two plans for raising

$ $500$ comma $000$$$500,000$

to expand operations. Plan A is to borrow at

$66\%,$

and plan B is to issue

$100$ comma $000100,000$

shares of common stock at

$ $5\mathrm{.}00$$$5\mathrm{.}00$

per share. Before any new$$ financing,

BBSBBS

has net income of

$ $200$ comma $000$$$200,000$

and

$100$ comma $000100,000$

shares of common stock outstanding. Assume you own most of

BBSBBS$\text{'}$s

existing stock. Management believes the company can use the new funds to earn additional income of

$ $400$ comma $000$$$400,000$

before interest and taxes.

BBSBBS$\text{'}$s

income tax rate is

$3030\%.$

Read the

requirements

LOADING...

$.$

Question content area bottom

Part $1$

Requirement $1.$ Analyze

BBSBBS$\text{'}$s

situation to determine which plan will result in higher earnings per share. $($For amounts with a$$ $$0$ balance, make sure to enter$"0"$ in the appropriate column. Round the EPS calculation to two decimal$$ places.$)$

$$

$$

Plan A

Plan B

$$

$$

Issue $$500,000$

Issue $$500,000$

$$

$$

of $6\%$ Bonds Payable

of Common Stock

Net income before expansion

$$

$$200,000$

$$

$$

Expected project income before interest and income tax

$$400,000$

$$

$$

$$

Less:

Interest expense

$(30,000)$

$$

$$

$$

Expected project income before income tax

$370,000$

$$

$$

$$

Less:

Income tax expense

$(111,000)$

$$

$$

$$

Expected project net income

$$

$259,000$

$$

$$

Total company net income

$$

$$459,000$

$$

$$

$$

$$

$$

$$

$$

$$

Earnings per share after expansion

$$

$$4\mathrm{.}59$

$$