Conrad Corporation plans to raise $8 million to pay off its existing short-term bank loan of $2.4 million and to increase total assets by $5,600,000. The bank loan bears an interest rate of 12 percent. The company's president owns 55% of the 4,000,000 shares of common stock and wishes to maintain control of the company. The company's tax rate is 21%. Balance sheet information is shown below. The company is considering two alternatives to raise the $8 million: (1) sell common stock at $20 per share, or (2) Sell bonds at a 12% coupon, each $1,000 bond carrying 25 warrants to buy common stock at $30 per share.
Current Balance Sheet
Current Liabilities $3,000,000
Common Stock, Par $0.50 2,000,000
Retained earnings 1,400,000
Total Assets $6,400,000 Total claims $6,400,000

Alternative 1: Common stock $20 Tax rate 35%
# new shares 400,000 New financing $8,000,000
Par value per share $0.50 Existing Loan $2,400,000
Interest rate 12%
Alternative 2: Debentures 12% Interest amount - old $288,000
Exercise price per warrant $30 Interest amount - new $960,000
# bonds to raise 4M 8,000
# new shares 200,000 President owns 55.0%
warrants per bond 25 Shares outstanding 4,000,000
New money raised 6,000,000
Addition to par 100,000
Additional paid-in capital 5,900,000
a. Show the new balance sheet under both alternatives. For Alternative 2, show the balance sheet after exercise of the warrants.