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Question: Analyzing alternative plans to raise money AF Electronics is considering two plans for raising $1,000,000 to expand operations. Plan A is to issue 5% bonds payable, and plan B is to issue 600,000 shares of common stock. Before any new financing, AF has net income of $250,000 and 100,000 shares of common stock outstanding. Management believes the company can use the new funds to earn additional income of $500,000 before interest and taxes. The income tax rate is 20%. Analyze the AF Electronics situation to determine which plan will result in higher earnings per share.

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Basic Finance, Finance

Category:- Basic Finance
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