Question: Sunrise Developments, Inc., is considering two financing alternatives for a $9,500,000 retail complex. One option is to issue 250,000 shares of common stock at a

Sunrise Developments, Inc., is considering two financing alternatives for a $9,500,000 retail complex. One option is to issue 250,000 shares of at a price of $38 per share. The second option is to borrow $9,500,000 at an interest rate of 6%. The new complex is expected to yield a before-tax return of 10%. The before-tax earnings before considering either financing alternative is $6,250,000. There are 2,000,000 shares of outstanding prior to considering financing alternatives. The tax rate is 20%.
a. Determine the estimated earnings per share impact from the two financing alternatives.
b. Which alternative has the most favorable impact on earnings per share?

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