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Problem 1 Delray Technology is considering these two alternatives to finance its construction of a new $2 million plant:

Problem 1
Delray Technology is considering these 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, 6% bonds at face value.
Complete the table and indicate which alternative is preferable.
Issue Stock Issue Bond
Income before interest and taxes $1,000,000 $1,000,000
Interest expense from bonds
Income before income taxes
Income tax expense (30%)
Net income
Outstanding shares          700,000
Earnings per share $ $

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