Assignment â?? Exploring Financing optionsJohn Brown owns a business and wants to expand. He can eit

Assignment â?? Exploring Financing optionsJohn Brown owns a business and wants to expand. He can eit

Assignment – Exploring Financing optionsJohn Brown owns a business and wants to expand. He can either borrow money or sell additional equity. Currently he is the sole owner of the business. Complete the information below for two scenarios: Scenario A the company borrows $200,000 and Scenario B, the company sells an additional $200,000 in common stock at $1 per share. What would you advise John to do and why? Assume for this example that revenues and expenses (other than those related to debt) do not change.Abbreviated Balance Sheet InformationCurrentlyScenario AScenario BLiabilitiesDebt$75,000Stockholder’s EquityCommon Stock (currently 200,000 shares/ $1 each)$200,000Retained Earnings$ 50,000Total Equity$250,000Abbreviated Income StatementRevenues$125,000Expenses (not including interest and taxes) 60,000Inc. before interest and taxes 65,000Interest expense (at 3% on debt amt. above) 2,250PreTax Income 62,750Taxes (rate of 25%) 15,687.50Net Income$ 47,062.50ROE.188Debt to Equity Ratio.30

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