**Educational Content for Finance and Accounting:****Financing Alternatives for Penny Arcades, Inc.**Penny Arcades, Inc. is evaluating two financing options for its new $35 million gaming center. The options are:a. **Issuing a $35 million note with a 7% interest rate.**b. **Issuing 1 million shares of common stock at $35 per share.****Requirements:**1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. Enter your answers in dollars, not millions. Round your "Earnings per Share" (Net income / Number of shares) to two decimal places.**Income Statement Completion:**| | Issue Note | Issue Stock ||--------------------------------|---------------|---------------|| Operating income | $11,000,000 | $11,000,000 || Interest expense (note only) | | || Income before tax | | || Income tax expense (35%) | | || Net income | $0 | $0 || Number of shares | 4,000,000 | 5,000,000 || Earnings per share (Net income / # of shares) | | |**Explanation of Calculations and Missing Information:**- **Interest Expense for the Note:** Calculate the interest on the $35 million note by applying the 7% interest rate. This will affect the "Income before tax" for the note option. - **Income Before Tax:** Subtract the interest expense (note option) from the operating income to determine the income before tax. - **Income Tax Expense:** Apply a 35% tax rate to the income before tax to determine the income tax expense for each option. - **Net Income:** Subtract the income tax expense from the income before tax to get the net income.- **Earnings Per Share (EPS):** Calculate by dividing the net income by the number of shares for each option.This comparison allows the company to understand the financial implications of each financing option on earnings and shareholder value.

EPS : It is an important financial measure, which shows profitability of a company. It is a portion of company's profit which is allocated to each individual share holder. This is used by investors to decide in which company they must invest? 1. No. Of shares will be 4,000,000 if 7% note is issued. No. Of shares if 1,000,000 shares of common stock are issued = 4,000,000+ 1,000,000 = 5,000,000