$xYZ$ Electronics is considering two plans for raising $$2,000,000$ to expand operations.

Plan A is to issue $7\%$ bonds payable, and plan B is to issue $200,000$ shares of common

stock. Before any new financing, XYZ Electronics has net income of $$200,000$ and

$100,000$ shares of common stock outstanding. Management believes the company can

use the new funds to earn additional income of $$400,000$ before interest and taxes. The

income tax rate is $21\%.$ Analyze the XYZ Electronics situation to determine which plan

will result in higher earnings per share. Use Exhibit $F$:$12-6$ as a guide.

Solution: